Related papers: Path Dependence in AMM-Based Markets: Mathematical…
Economic agent-based models (ABMs) are becoming more and more data-driven, establishing themselves as increasingly valuable tools for economic research and policymaking. We propose to classify the extent to which an ABM is data-driven based…
This paper studies the question whether automated market maker protocols such as Uniswap can sustainably retain a portion of their trading fees for the protocol. We approach the problem by modelling how to optimally choose a pool's take…
Financial models do not merely analyse markets, but actively shape them. This effect, known as performativity, describes how financial theories and the subsequent actions based on them influence market processes, by creating self-fulfilling…
There are two possible ways of interpreting the seemingly stochastic nature of financial markets: the Efficient Market Hypothesis (EMH) and a set of stylized facts that drive the behavior of the markets. We show evidence for some of the…
We investigate the market microstructure of Automated Market Makers (AMMs), the most prominent type of blockchain-based decentralized exchanges. We show that the order execution mechanism yields token value loss for liquidity providers if…
This paper highlights the hidden dependence of the basic pricing equation of a multi-period consumption-based asset pricing model on price and payoff autocorrelations. We obtain the approximations of the basic pricing equation that describe…
In real-world stock markets, certain chart patterns -- such as price declines near historical highs -- cannot be fully explained by fundamentals alone. These phenomena suggest the presence of path dependence in price formation, where…
We describe a bottom-up framework, based on the identification of appropriate order parameters and determination of phase diagrams, for understanding progressively refined agent-based models and simulations of financial markets. We…
Agent-based models provide a constructive approach to studying emergent dynamics in life-like systems composed of interacting, adaptive agents. Financial markets serve as a canonical example of such systems, where collective price dynamics…
Automated Market Makers (AMMs) are used to provide liquidity for combinatorial prediction markets that would otherwise be too thinly traded. They offer both buy and sell prices for any of the doubly exponential many possible securities that…
Decentralized Exchanges (DEXs) are pivotal applications in the Decentralized Finance (DeFi) landscape, aiming to facilitate trustless cryptocurrency trading by relying on smart contracts and blockchain networks. The developments in the DEXs…
Agent Based Modelling (ABM) is a computational framework for simulating the behaviours and interactions of autonomous agents. As Agent Based Models are usually representative of complex systems, obtaining a likelihood function of the model…
Concentrated-liquidity automated market makers (CLAMMs), as exemplified by Uniswap v3, are now a common primitive in decentralized finance frameworks. Their design combines continuous trading on constant-function curves with discrete tick…
This paper assumes that the randomness of market trade values and volumes determines the properties of stochastic market prices. We derive the direct dependence of the first two price statistical moments and price volatility on statistical…
Electricity markets are significantly more volatile than other comparable financial or commodity markets. Extreme price outcomes and their transmission between regions pose significant risks for market participants. We examine the…
This paper reveals the intrinsic structure of Matrix Product States (MPS) by establishing their deep connection to entangled hidden Markov models (EHMMs). It is demonstrated that a significant class of MPS can be derived as the outcomes of…
Constant function market makers (CFMMs) such as Uniswap have facilitated trillions of dollars of digital asset trades and have billions of dollars of liquidity. One natural question is how to optimally route trades across a network of CFMMs…
Matching markets are of particular interest in computer science and economics literature as they are often used to model real-world phenomena where we aim to equitably distribute a limited amount of resources to multiple agents and…
Constant function market makers (CFMMs) such as Uniswap, Balancer, Curve, and mStable, among many others, make up some of the largest decentralized exchanges on Ethereum and other blockchains. Because all transactions are public in current…
In a universal framework that expresses any market system in terms of state transition rules, we prove that every DeFi market system has an invariant function and is thus by definition a CFMM; indeed, all automated market makers (AMMs) are…