Related papers: On Market Design and Latency Arbitrage
In this paper we develop a model of an order-driven market where traders set bids and asks and post market or limit orders according to exogenously fixed rules. Agents are assumed to have three components to the expectation of future asset…
This article considers the pricing and hedging of a call option when liquidity matters, that is, either for a large nominal or for an illiquid underlying asset. In practice, as opposed to the classical assumptions of a price-taking agent in…
In this article, we present a discrete time modeling framework, in which the shape and dynamics of a Limit Order Book (LOB) arise endogenously from an equilibrium between multiple market participants (agents). We use the proposed modeling…
Statistical analysis of high-frequency stock market order transaction data is conducted to understand order transition dynamics. We employ a first-order time-homogeneous discrete-time Markov chain model to the sequence of orders of stocks…
We present a simple dynamic equilibrium model for an online exchange where both buyers and sellers arrive according to a exogenously defined stochastic process. The structure of this exchange is motivated by the limit order book mechanism…
We study the optimal portfolio liquidation problem over a finite horizon in a limit order book with bid-ask spread and temporary market price impact penalizing speedy execution trades. We use a continuous-time modeling framework, but in…
Negotiation is a very common interaction between automated agents. Many common negotiation protocols work with cardinal utilities, even though ordinal preferences, which only rank the outcomes, are easier to elicit from humans. In this work…
We study Arbitrum's Express Lane Auction (ELA), an ahead-of-time second-price auction that grants the winner an exclusive latency advantage for one minute. Building on a single-round model with risk-averse bidders, we propose a hypothesis…
We study optimal trade execution strategies in financial markets with discrete order flow. The agent has a finite liquidation horizon and must minimize price impact given a random number of incoming trade counterparties. Assuming that the…
Reduced installation and operating costs give energy storage systems an opportunity to participate actively and profitably in electricity markets. In addition to providing ancillary services, energy storage systems can also arbitrage…
Considering that a trader or a trading algorithm interacting with markets during continuous auctions can be modeled by an iterating procedure adjusting the price at which he posts orders at a given rhythm, this paper proposes a procedure…
A coordinated trading process is proposed as a design for an electricity market with significant uncertainty, perhaps from renewables. In this process, groups of agents propose to the system operator (SO) a contingent buy and sell trade…
We study the upper hedging price for contingent claims in market models with strong types of arbitrage: increasing profit, strong arbitrage, and arbitrage of the first kind. The existence of arbitrage may make the price smaller than if it…
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…
The purpose of this work is to explore the role that arbitrage opportunities play in pricing financial derivatives. We use a non-equilibrium model to set up a stochastic portfolio, and for the random arbitrage return, we choose a stationary…
We propose a price impact model where changes in prices are purely driven by the order flow in the market. The stochastic price impact of market orders and the arrival rates of limit and market orders are functions of the market liquidity…
Bandit algorithms are guaranteed to solve diverse sequential decision-making problems, provided that a sufficient exploration budget is available. However, learning from scratch is often too costly for personalization tasks where a single…
Trading large volumes of a financial asset in order driven markets requires the use of algorithmic execution dividing the volume in many transactions in order to minimize costs due to market impact. A proper design of an optimal execution…
The modern network aims to prioritize critical traffic over non-critical traffic and effectively manage traffic flow. This necessitates proper buffer management to prevent the loss of crucial traffic while minimizing the impact on…
American options in a multi-asset market model with proportional transaction costs are studied in the case when the holder of an option is able to exercise it gradually at a so-called mixed (randomised) stopping time. The introduction of…