Related papers: Arbitrage with bounded Liquidity
We consider the pricing of derivatives in a setting with trading restrictions, but without any probabilistic assumptions on the underlying model, in discrete and continuous time. In particular, we assume that European put or call options…
We consider a financial market in which traders potentially face restrictions in trading some of the available securities. Traders are heterogeneous with respect to their beliefs and risk profiles, and the market is assumed thin: traders…
This paper formulates a model of utility for a continuous time framework that captures the decision-maker's concern with ambiguity about both volatility and drift. Corresponding extensions of some basic results in asset pricing theory are…
Statistical arbitrage methods identify mispricings in securities with the goal of building portfolios which are weakly correlated with the market. In pairs trading, an arbitrage opportunity is identified by observing relative price…
We study the relationship between price spread, volatility and trading volume. We find that spread forms as a result of interplay between order liquidity and order impact. When trading volume is small adding more liquidity helps improve…
We investigate brokerage between traders from an online learning perspective. At any round $t$, two traders arrive with their private valuations, and the broker proposes a trading price. Unlike other bilateral trade problems already studied…
We study the valuation and hedging problem of European options in a market subject to liquidity shocks. Working within a Markovian regime-switching setting, we model illiquidity as the inability to trade. To isolate the impact of such…
This paper presents the results of a comprehensive empirical study of losses to arbitrageurs (following the formalization of loss-versus-rebalancing by [Milionis et al., 2022]) incurred by liquidity providers on automated market makers…
We develop a robust framework for pricing and hedging of derivative securities in discrete-time financial markets. We consider markets with both dynamically and statically traded assets and make minimal measurability assumptions. We obtain…
A common assumption in financial engineering is that the market price for any derivative coincides with an objectively defined risk-neutral price - a plausible assumption only if traders collectively possess objective knowledge about the…
In financial markets, liquidity is not constant over time but exhibits strong seasonal patterns. In this article we consider a limit order book model that allows for time-dependent, deterministic depth and resilience of the book and…
The Walras approach to equilibrium focuses on the existence of market prices at which the total demands for goods are matched by the total supplies. Trading activities that might identify such prices by bringing agents together as potential…
We provide closed-form market equilibrium formula consolidating informational imperfections and investors beliefs. Based on Merton's model, we characterize the equilibrium expected excess returns vector with incomplete information. We then…
The paper studies sub and super-replication price bounds for contingent claims defined on general trajectory based market models. No prior probabilistic or topological assumptions are placed on the trajectory space, trading is assumed to…
We study robust notions of good-deal hedging and valuation under combined uncertainty about the drifts and volatilities of asset prices. Good-deal bounds are determined by a subset of risk-neutral pricing measures such that not only…
This study quantifies the potential non-atomic MEV on Layer-2 (L2) blockchains by measuring the arbitrage opportunities between cross-rollup and DEX-CEX. Over recent years, we observe a shift in trading activities from Ethereum to rollups,…
The purpose of this work is to explore the role that random 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…
In a market with one safe and one risky asset, an investor with a long horizon, constant investment opportunities, and constant relative risk aversion trades with small proportional transaction costs. We derive explicit formulas for the…
We extend the fundamental theorem of asset pricing to a model where the risky stock is subject to proportional transaction costs in the form of bid-ask spreads and the bank account has different interest rates for borrowing and lending. We…
Along with the energy transition, the energy markets change their organization toward more decentralized and self-organized structures, striving for locally optimal profits. These tendencies may endanger the physical grid stability. One…