Related papers: How to design a derivatives market?
Unexpected advertising items in sponsored search may reduce users' reliance on organic search, resulting in hidden cost for the e-commerce platform. To address this problem and promote sustainable growth, we propose a dynamic reserve price…
We use formal methods to specify, design, and monitor continuous double auctions, which are widely used to match buyers and sellers at exchanges of foreign currencies, stocks, and commodities. We identify three natural properties of such…
An efficient computational algorithm to price financial derivatives is presented. It is based on a path integral formulation of the pricing problem. It is shown how the path integral approach can be worked out in order to obtain fast and…
The dynamics of financial markets are driven by the interactions between participants, as well as the trading mechanisms and regulatory frameworks that govern these interactions. Decision-makers would rather not ignore the impact of other…
Using tools from spectral analysis, singular and regular perturbation theory, we develop a systematic method for analytically computing the approximate price of a derivative-asset. The payoff of the derivative-asset may be path-dependent.…
In this paper, we present Velocity, a decentralized market deployed on Ethereum for trading a custom type of derivative option. To enable the smart contract to work, we also implement a price fetching tool called PriceGeth. We present this…
We describe a two-stage mechanism that fully implements the set of efficient outcomes in two-agent environments with quasi-linear utilities. The mechanism asks one agent to set prices for each outcome, and the other agent to make a choice,…
Recently, most stock exchanges in the U.S. employ maker-taker fees, in which an exchange pays rebates to traders placing orders in the order book and charges fees to traders taking orders from the order book. Maker-taker fees encourage…
Daily deals platforms such as Amazon Local, Google Offers, GroupOn, and LivingSocial have provided a new channel for merchants to directly market to consumers. In order to maximize consumer acquisition and retention, these platforms would…
We present a perturbation theory of the market impact based on an extension of the framework proposed by [Loeper, 2018] -- originally based on [Liu and Yong, 2005] -- in which we consider only local linear market impact. We study the…
Market making is a fundamental trading problem in which an agent provides liquidity by continually offering to buy and sell a security. The problem is challenging due to inventory risk, the risk of accumulating an unfavourable position and…
This paper gives a theoretical model for design and analysis of mechanisms for online marketplaces where a bidding dashboard enables the bid-optimization of long-lived agents. We assume that a good allocation algorithm exists when given the…
We use the theory of cooperative games for the design of fair insurance contracts. An insurance contract needs to specify the premium to be paid and a possible participation in the benefit (or surplus) of the company. It results from the…
We study the problem faced by a service provider that has to sell services to a user. In our model the service provider proposes various payment options (a menu) to the user which may be based, for example, on the quality of the service.…
This study explores the design of an efficient rebate policy in auction markets, focusing on a continuous-time setting with competition among market participants. In this model, a stock exchange collects transaction fees from auction…
We introduce a criterion how to price derivatives in incomplete markets, based on the theory of growth optimal strategy in repeated multiplicative games. We present reasons why these growth-optimal strategies should be particularly relevant…
Considering the sequential clearing of energy and reserves in Europe, enabling inter-area reserve exchange requires optimally allocating inter-area transmission capacities between these two markets. To achieve this, we provide a…
We study the problem of option pricing and hedging strategies within the frame-work of risk-return arguments. An economic agent is described by a utility function that depends on profit (an expected value) and risk (a variance). In the…
We develop a model for indifference pricing in derivatives markets where price quotes have bid-ask spreads and finite quantities. The model quantifies the dependence of the prices and hedging portfolios on an investor's beliefs, risk…
The objective of this paper is to provide a comprehensive study no-arbitrage pricing of financial derivatives in the presence of funding costs, the counterparty credit risk and market frictions affecting the trading mechanism, such as…