Related papers: A central bank strategy for defending a currency p…
We consider a financial model with permanent price impact. Continuous time trading dynamics are derived as the limit of discrete rebalancing policies. We then study the problem of super-hedging a European option. Our main result is 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…
Automated market makers (AMMs) are a new prototype of decentralised exchanges which are revolutionising market interactions. The majority of AMMs are constant product markets (CPMs) where exchange rates are set by a trading function. This…
The prevention of rapidly and steeply falling market prices is vital to avoid financial crisis. To this end, some stock exchanges implement a price limit or a circuit breaker, and there has been intensive investigation into which regulation…
We present a general derivation of the arbitrage-free pricing framework for multiple-currency collateralized products. We include the impact on option pricing of the policy adopted to fund in foreign currency, so that we are able to price…
The foreign exchange market has taken an important role in the global financial market. While foreign exchange trading brings high-yield opportunities to investors, it also brings certain risks. Since the establishment of the foreign…
This paper studies existence and uniqueness of equilibrium prices in a model of the banking sector in which banks trade contingent convertible bonds with stock price triggers among each other. This type of financial product was proposed as…
This paper investigates the investment behaviour of a large unregulated financial institution (FI) with CARA risk preferences. It shows how the FI optimizes its trading to account for market illiquidity using an extension of the…
We introduce a problem in which a service vehicle seeks to guard a deadline (boundary) from dynamically arriving mobile targets. The environment is a rectangle and the deadline is one of its edges. Targets arrive continuously over time on…
This article examines how emerging economies use countercyclical monetary policies to manage economic crises and fluctuations in dominant currencies, such as the US dollar and the euro. Global economic cycles are marked by phases of…
Reinforcement learning is explored as a candidate machine learning technique to enhance existing analytical solutions for optimal trade execution with elements from the market microstructure. Given a volume-to-trade, fixed time horizon and…
We study a game where households convert paper assets, such as money, into consumption goods, to preempt inflation. The game features a unique equilibrium with high (low) inflation, if money supply is high (low). For intermediate levels of…
We define and study a lending game to model the interbank money market, in which lending banks strategically allocate their cash to borrowing banks. The interest rate offered by each borrowing bank is within the interest rate corridor set…
We consider the bilateral trade problem, in which two agents trade a single indivisible item. It is known that the only dominant-strategy truthful mechanism is the fixed-price mechanism: given commonly known distributions of the buyer's…
In this paper, we consider a generic interest rate market in the presence of roll-over risk, which generates spreads in spot/forward term rates. We do not require classical absence of arbitrage and rely instead on a minimal market viability…
An agent-based computational economical toy model for the emergence of money from the initial barter trading, inspired by Menger's postulate that money can spontaneously emerge in a commodity exchange economy, is extensively studied. The…
A counterparty credit limit (CCL) is a limit that is imposed by a financial institution to cap its maximum possible exposure to a specified counterparty. CCLs help institutions to mitigate counterparty credit risk via selective…
Portfolio optimisation typically aims to provide an optimal allocation that minimises risk, at a given return target, by diversifying over different investments. However, the potential scope of such risk diversification can be limited if…
Bilateral trade models the task of intermediating between two strategic agents, a seller and a buyer, willing to trade a good for which they hold private valuations. We study this problem from the perspective of a broker, in a regret…
In our model, private actors with interbank cash flows similar to, but nore general than (Carmona, Fouque, Sun, 2013) borrow from the outside economy at a certain interest rate, controlled by the central bank, and invest in risky assets.…