Related papers: Inefficiency of CFMs: hedging perspective and agen…
Value adjustment of uncollateralized trades is determined within a risk-neutral pricing framework. When hedging such trades, investors cannot freely trade protection on their own name, thus facing an incomplete market. This fact is…
To trade tokens in cryptoeconomic systems, automated market makers (AMMs) typically rely on liquidity providers (LPs) that deposit tokens in exchange for rewards. To profit from such rewards, LPs must use effective liquidity provisioning…
It has been assumed that arbitrage profits are not possible in efficient markets, because future prices are not predictable. Here we show that predictability alone is not a sufficient measure of market efficiency. We instead propose to…
Automated market makers (AMM) have grown to obtain significant market share within the cryptocurrency ecosystem, resulting in a proliferation of new products pursuing exotic strategies for horizontal differentiation. Yet, their theoretical…
I summarize the recent work on market (in)efficiency, highlighting key elements why financial markets will never be made efficient. My approach is not by adding more empirical evidence, but giving plausible reasons as to where inefficiency…
We develop an agent-based simulation of the catastrophe insurance and reinsurance industry and use it to study the problem of risk model homogeneity. The model simulates the balance sheets of insurance firms, who collect premiums from…
The high-order complexity of human behaviour is likely the root cause of extreme difficulty in financial market projections. We consider that behavioural simulation can unveil systemic dynamics to support analysis. Simulating diverse human…
Market fragmentation across multiple Automated Market Makers (AMMs) creates inefficiencies such as costly arbitrage, unnecessarily high slippage and delayed incorporation of new information into prices. These inefficiencies raise trading…
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…
Many early order flow auction designs handle the payment for orders when they execute on the chain rather than when they are won in the auction. Payments in these auctions only take place when the orders are executed, creating a free option…
This paper aims to extend downside protection to a hedge fund investment portfolio based on shared loss fee structures that have become increasing popular in the market. In particular, we consider a second tranche and suggest the purchase…
We consider a multivariate financial market with transaction costs and study the problem of finding the minimal initial capital needed to hedge, without risk, European-type contingent claims. The model is similar to the one considered in…
Blockchain-based cryptocurrencies prioritize transactions based on their fees, creating a unique kind of fee market. Empirically, this market has failed to yield stable equilibria with predictable prices for desired levels of service. We…
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…
A fund manager invests both the fund's assets and own private wealth in separate but potentially correlated risky assets, aiming to maximize expected utility from private wealth in the long run. If relative risk aversion and investment…
Liberalized electricity markets often include resource adequacy mechanisms that require consumers to contract with generation resources well in advance of real-time operations. While administratively defined mechanisms have most commonly…
Agent-based models, particularly those applied to financial markets, demonstrate the ability to produce realistic, simulated system dynamics, comparable to those observed in empirical investigations. Despite this, they remain fairly…
Liquidity providers (LPs) are essential figures in the operation of automated market makers (AMMs); in exchange for transaction fees, LPs lend the liquidity that allows AMMs to operate. While many prior works have studied the incentive…
In this paper we investigate a potential use of fluid approximation techniques in the context of stochastic model checking of CSL formulae. We focus on properties describing the behaviour of a single agent in a (large) population of agents,…
We investigate the most common type of blockchain-based decentralized exchange, which are known as constant function market makers (CFMMs). We examine the the market microstructure around CFMMs and present a model for valuing the liquidity…