Related papers: Chasing price drains liquidity
Constant Function Market Makers (CFMMs) are a family of automated market makers that enable censorship-resistant decentralized exchange on public blockchains. Arbitrage trades have been shown to align the prices reported by CFMMs with those…
In this paper, we introduce a suite of models for price-aware automated market making platforms willing to optimize their quotes. These models incorporate advanced price dynamics, including stochastic volatility, jumps, and microstructural…
We propose a simple model for the behaviour of longterm investors on a stock market, consisting of three particles, which represent the current price of the stock and the opinion of the buyers, respectively sellers, about the right trading…
The geometric L\'evy model (GLM) is a natural generalisation of the geometric Brownian motion model (GBM) used in the derivation of the Black-Scholes formula. The theory of such models simplifies considerably if one takes a pricing kernel…
Arbitrage can arise from the simultaneous purchase and sale of the same asset in different markets in order to profit from a difference in its price. This work systematically reviews arbitrage opportunities between Automated Market Makers…
Automated Market Makers (AMMs) are a cornerstone of decentralized finance. They are smart contracts (stateful programs) running on blockchains. They enable virtual token exchange: traders swap tokens with the AMM for a fee, while liquidity…
This paper develops a model for the bid and ask prices of a European type asset by formulating a stochastic control problem. The state process is governed by a modified geometric Brownian motion whose drift and diffusion coefficients depend…
Automated Market Makers (AMMs) are essential to decentralized finance, offering continuous liquidity and enabling intermediary-free trading on blockchains. However, participants in AMMs are vulnerable to Maximal Extractable Value (MEV)…
The recent deployment of distributed battery units in prosumer premises offer new opportunities for providing aggregated flexibility services to both distribution system operators and balance responsible parties. The optimization problem…
Financial markets have evolved over centuries, and exchanges have converged to rely on the order book mechanism for market making. Latency on the blockchain, however, has prevented decentralized exchanges (DEXes) from utilizing the order…
We investigate the limiting distribution of geometric Brownian motion conditional on its running maximum taking large values. We show that the conditional distribution of the geometric Brownian motion converges after a suitable…
We study a novel automated market maker design: the function maximizing AMM (FM-AMM). Our central assumption is that trades are batched before execution. Because of competition between arbitrageurs, the FM-AMM eliminates arbitrage profits…
Decentralized Exchanges (DEXs) are now a significant component of the financial world where billions of dollars are traded daily. Differently from traditional markets, which are typically based on Limit Order Books, DEXs typically work as…
Decentralized exchanges using automated market makers create arbitrage opportunities with centralized exchanges, where gas fees and transaction ordering are critical. Existing models largely overlook competition among arbitrageurs, despite…
We suggest a framework to determine optimal trading fees for constant function market makers (CFMMs) in order to maximize liquidity provider returns. In a setting of multiple competing liquidity pools, we show that no race to the bottom…
Active Appearance Models (AAMs) are one of the most popular and well-established techniques for modeling deformable objects in computer vision. In this paper, we study the problem of fitting AAMs using Compositional Gradient Descent (CGD)…
Executing even moderately large derivatives orders can be expensive and risky; it's hard to balance the uncertainty of working an order over time versus paying a liquidity premium for immediate execution. Here, we introduce the Time Is…
The mixed fractional Brownian motion ($mfBm$) has become quite popular in finance, since it allows one to model long-range dependence and self-similarity while remaining, for certain values of the Hurst parameter, arbitrage-free. In the…
Many studies assume stock prices follow a random process known as geometric Brownian motion. Although approximately correct, this model fails to explain the frequent occurrence of extreme price movements, such as stock market crashes. Using…
This paper presents a numerical model to solve the problem of cash accumulation strategies for products with an unknown future price, like assets. Stock prices are modeled by a discretized Wiener Process, and by the means of ordinary…