Related papers: FX Market Making with Internal Liquidity
The limit order book mechanism has been the core trading mechanism of the modern financial market. In the cryptocurrency market, centralized exchanges also adopt this limit order book mechanism and a centralized matching engine dynamically…
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…
In this article, we provide a flexible framework for optimal trading in an asset listed on different venues. We take into account the dependencies between the imbalance and spread of the venues, and allow for partial execution of limit…
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…
In this paper we explore optimal liquidation in a market populated by a number of heterogeneous market makers that have limited inventory-carrying and risk-bearing capacity. We derive a reduced form model for the dynamic of their aggregated…
Asset liquidity in modern financial markets is a key but elusive concept. A market is often said to be liquid when the prevailing structure of transactions provides a prompt and secure link between the demand and supply of assets, thus…
We model the behavior of three agent classes acting dynamically in a limit order book of a financial asset. Namely, we consider market makers (MM), high-frequency trading (HFT) firms, and institutional brokers (IB). Given a prior dynamic of…
While the market impact of aggressive orders has been extensively studied, the impact of passive orders, those executed through limit orders, remains less understood. The goal of this paper is to investigate passive market impact by…
Decentralized exchanges (DEXes) have introduced an innovative trading mechanism, where it is not necessary to match buy-orders and sell-orders to execute a trade. DEXes execute each trade individually, and the exchange rate is automatically…
Recent developments in the global liberalization of equity and currency markets, coupled to advances in trading technologies, are making markets increasingly interdependent. This increased fluidity raises questions about the stability of…
We analyze an optimal trade execution problem in a financial market with stochastic liquidity. To this end we set up a limit order book model in which both order book depth and resilience evolve randomly in time. Trading is allowed in both…
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…
Automated Market Makers (AMMs) are a central component of decentralized exchanges, yet their equilibrium foundations and microeconomic mechanisms remain incompletely understood. This paper develops a dynamic equilibrium framework for…
In dealer markets, dealers provide prices at which they agree to buy and sell the assets and securities they have in their scope. With ever increasing trading volume, this quoting task has to be done algorithmically in most markets such as…
The standard approach for compensating liquidity providers on many decentralized exchanges (DEX) for serving as counter-party to swaps is through charging a small percentage of fees. The expected payoff from the cash flow of this mode of…
Automated market makers with concentrated liquidity capabilities are programmable at the tick level. The maximization of earned fees, plus depreciated reserves, is a convex optimization problem whose vector solution gives the best provision…
Many empirical studies have discussed market liquidity, which is regarded as a measure of a booming financial market. Further, various indicators for objectively evaluating market liquidity have also been proposed and their merits have been…
Order matching systems form the backbone of modern equity exchanges, used by millions of investors daily. Thus, their operation is strictly controlled through numerous regulatory directives to ensure that markets are fair and transparent.…
The continuous-time version of Kyle's (1985) model is studied, in which market makers are not fiduciaries. They have some market power which they utilize to set the price to their advantage, resulting in positive expected profits. This has…
An automated market maker (AMM) provides a method for creating a decentralized exchange on the blockchain. For this purpose, individual investors lend liquidity to the AMM pool in exchange for a stream of fees earned from its operations as…