Related papers: Optimal Fees for Geometric Mean Market Makers
A prevalent market structure in the Internet economy consists of buyers and sellers connected by a platform (such as Amazon or eBay) that acts as an intermediary and keeps a share of the revenue of each transaction. While the optimal…
This paper studies arbitrage pricing theory in financial markets with implicit transaction costs. We extend the existing theory to include the more realistic possibility that the price at which the investors trade is dependent on the traded…
As the FX markets continue to evolve, many institutions have started offering passive access to their internal liquidity pools. Market makers act as principal and have the opportunity to fill those orders as part of their risk management,…
With the widespread adoption of blockchain technology, the transaction fee mechanism (TFM) in blockchain systems has become a prominent research topic. An ideal TFM should satisfy user incentive compatibility (UIC), miner incentive…
When agents trade in a Duality-based Cost Function prediction market, they collectively implement the learning algorithm Follow-The-Regularized-Leader. We ask whether other learning algorithms could be used to inspire the design of…
We find the equilibrium contract that an automated market maker (AMM) offers to their strategic liquidity providers (LPs) in order to maximize the order flow that gets processed by the venue. Our model is formulated as a leader-follower…
Automated market makers with concentrated liquidity capabilities are programmable at the tick level. The maximization of earned fees, plus depreciated reserves, is a convex optimization problem whose vector solution gives the best provision…
In this paper we formulate the now classical problem of optimal liquidation (or optimal trading) inside a Mean Field Game (MFG). This is a noticeable change since usually mathematical frameworks focus on one large trader in front of a…
In this work, we present an application of the probabilistic weak formulation of mean field games (MFG) for modeling liquidity pools in a constant product automated market maker (AMM) protocol in the context of decentralized finance. Our…
In the Bitcoin system, transaction fees serve as an incentive for blockchain confirmations. In general, a transaction with a higher fee is likely to be included in the next block mined, whereas a transaction with a smaller fee or no fee may…
Since they were authorized by the U.S. Security and Exchange Commission in 1998, electronic exchanges have boomed, and by 2010 high frequency trading accounted for over 70% of equity trades in the US. Such markets are thought to increase…
Financial options are contracts that specify the right to buy or sell an underlying asset at a strike price by an expiration date. Standard exchanges offer options of predetermined strike values and trade options of different strikes…
Financial markets are often driven by latent factors which traders cannot observe. Here, we address an algorithmic trading problem with collections of heterogeneous agents who aim to perform optimal execution or statistical arbitrage, where…
This paper proposes a novel multi-layer blockchain architecture for the cross-border trading of CBDCs. The permissioned layer-2, by relying on the public consensus of the underlying network, assures the security and integrity of the…
This study provides a practical introduction to high-frequency trading in blockchain-based currency markets. These types of markets have some specific characteristics that differentiate them from the stock markets, such as a large number of…
Tradable mobility credit (TMC) schemes are an approach to travel demand management that have received significant attention in recent years. This paper proposes and analyzes alternative market models for a TMC system -- focusing on market…
Concentrated Liquidity Market Makers (CLMMs) represent a fundamental innovation in market microstructure, transforming liquidity provision from passive portfolio allocation to active risk management. This evolution creates significant…
The role of a market maker is to simultaneously offer to buy and sell quantities of goods, often a financial asset such as a share, at specified prices. An automated market maker (AMM) is a mechanism that offers to trade according to some…
Decentralized exchanges (DEXs) are crucial to decentralized finance (DeFi) as they enable trading without intermediaries. However, they face challenges like impermanent loss (IL), where liquidity providers (LPs) see their assets' value…
The Maker Protocol is a decentralized finance application that enables collateralized lending. The application uses open-bid, second-price auctions to complete its loan liquidation process. In this paper, we develop a bidding function for…