Related papers: FX Market Making with Internal Liquidity
This paper addresses the trade-off between internalisation and externalisation in the management of stochastic trade flows. We consider agents who must absorb flows and manage risk by deciding whether to warehouse it or hedge in the market,…
Automated Market Makers (AMMs) are emerging as a popular decentralised trading platform. In this work, we determine the optimal dynamic fees in a constant function market maker. We find approximate closed-form solutions to the control…
We consider thin incomplete financial markets, where traders with heterogeneous preferences and risk exposures have motive to behave strategically regarding the demand schedules they submit, thereby impacting prices and allocations. We…
In the ever evolving landscape of decentralized finance automated market makers (AMMs) play a key role: they provide a market place for trading assets in a decentralized manner. For so-called bluechip pairs, arbitrage activity provides a…
In financial markets, the order flow, defined as the process assuming value one for buy market orders and minus one for sell market orders, displays a very slowly decaying autocorrelation function. Since orders impact prices, reconciling…
We study a game between liquidity provider and liquidity taker agents interacting in an over-the-counter market, for which the typical example is foreign exchange. We show how a suitable design of parameterized families of reward functions…
Automated market makers (AMMs) have emerged as the dominant market mechanism for trading on decentralized exchanges implemented on blockchains. This paper presents a single mechanism that targets two important unsolved problems for AMMs:…
We present a financial market model, characterized by self-organized criticality, that is able to generate endogenously a realistic price dynamics and to reproduce well-known stylized facts. We consider a community of heterogeneous traders,…
Financial markets are subject to long periods of polarized behavior, such as bull-market or bear-market phases, in which the vast majority of market participants seem to almost exclusively choose one action (between buying or selling) over…
Financial markets are often modelled as if time were unique and continuous across assets and markets. Financial markets are however asynchronous, order flow is event-driven, and waiting times between events are often random. Many of the…
In this article, we tackle the problem of a market maker in charge of a book of options on a single liquid underlying asset. By using an approximation of the portfolio in terms of its vega, we show that the seemingly high-dimensional…
Suppliers (including companies and individual prosumers) may wish to protect their private information when selling items they have in stock. A market is envisaged where private information can be protected through the use of differential…
In a fixed time horizon, appropriately executing a large amount of a particular asset -- meaning a considerable portion of the volume traded within this frame -- is challenging. Especially for illiquid or even highly liquid but also highly…
We study the problem of optimal liquidity withdrawal for a representative liquidity provider (LP) in an automated market maker (AMM). LPs earn fees from trading activity but are exposed to impermanent loss (IL) due to price fluctuations.…
In this paper, making use of recent statistical physics techniques and models, we address the specific role of randomness in financial markets, both at the micro and the macro level. In particular, we review some recent results obtained…
We study the optimal execution of market and limit orders with permanent and temporary price impacts as well as uncertainty in the filling of limit orders. Our continuous-time model incorporates a trade speed limiter and a trader director…
In this paper, we describe a novel agent-based approach for modelling the transaction cost of buying or selling an asset in financial markets, e.g., to liquidate a large position as a result of a margin call to meet financial obligations.…
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 chapter we review some recent results on the dynamics of price formation in financial markets and its relations with the efficient market hypothesis. Specifically, we present the limit order book mechanism for markets and we…
Exchange markets are a significant type of market economy, in which each agent holds a budget and certain (divisible) resources available for trading. Most research on equilibrium in exchange economies is based on an environment of…