Geometric Mean Market Makers super-hedge impermanent loss without models.
problem Super-hedging impermanent loss in Geometric Mean Market Makers.
method Model-free rebalancing strategy.
result Loss-versus-rebalancing vanishes due to finite variation exchange rate.
New market makers improve on existing models in DeFi.
problem Improving liquidity and efficiency in decentralized finance.
method Developed a new family of market makers based on generalized means.
result G3Ms offer properties preferable to existing models.
We analyze impermanent loss in AMMs and show G3Ms are simplest.
problem Understanding impermanent loss in automated market makers.
method Developed a general framework and analyzed Geometric Mean Market Makers (G3Ms).
result G3Ms have the simplest impermanent loss characteristics.
Optimal fees for G3Ms align LP value with market accuracy.
problem Optimal fees for G3Ms to attract liquidity without sacrificing accuracy.
method Developed a framework for determining LP value with fees for G3Ms under diffusion.
result LPs prefer G3Ms over other strategies as fees approach zero.
This paper extends liquidity returns in geometric mean markets to time-varying weights.
problem Understanding returns and no-arbitrage prices in geometric mean markets with time-varying weights.
method Extending known results for constant-weight G3Ms to the general case of G3Ms with time-varying and potentially stochastic weights.
result LP shares can replicate the payoffs of financial derivatives and various trading strategies.
No fair and strategy-proof automated market maker exists for more than two assets.
problem Designing a fair and strategy-proof automated market maker for multiple assets.
method Analyzing the weighted-product family of aggregation rules and their properties.
result No aggregation rule is both fair and strategy-proof for more than two assets.
This paper analyzes and compares different Automated Market Maker mechanisms.
problem Impermanent loss in Constant Function Market Makers.
method Mean-Variance analysis of liquidity providers' profit and loss, comparison of different mechanisms.
result Optimized oracle-based mechanisms outperform Constant Function Market Makers.
Modeling price dynamics in AMMs with fees using geometric Brownian motion.
problem Understanding price dynamics in AMMs with transaction fees.
method Geometric Brownian motion, local times, excursion theory.
result Derivation of time-changed representation and limiting behavior of AMM prices.
Paper proposes efficient cost functions for automated market makers in DeFi.
problem Inefficient and computationally complex cost functions in DeFi.
method Proposes and analyzes constant circle/ellipse based cost functions.
result Proposed cost functions are computationally efficient and robust against attacks.
Market-maker optimizes quotes based on strategic market-takers' behavior.
problem Optimizing market-making strategies in a strategic trading environment.
method Mean-field game approach to model strategic market-takers and derive optimal controls.
result Derivation of optimal controls for market-maker and market-taker.
Modeling informed trading with risk-averse market makers.
problem Understanding informed trading and its impact on market liquidity and risk premia.
method Connections between optimal transport theory and Kyle's model, including new characterizations of profits and duality.
result Liquidity is lower, assets exhibit short-term reversals, and risk premia depend on market maker inventories, which are mean reverting.
Study growth of LP wealth in G3Ms affected by trading fees and arbitrage.
problem Analyzing profitability of LPs in G3Ms under trading fees and arbitrage.
method Stochastic reflected diffusion processes to model G3M dynamics.
result Long-term expected logarithmic growth of LP wealth calculated.
This study optimizes crypto-market trading conditions without assuming convexity.
problem Optimizing crypto-market trading conditions without convexity.
method Rigorous mathematical analysis of constant function market makers under quasilinear trade functions.
result Quasilinear trade functions can replicate convex functions' robustness against arbitrage.
Optimizes liquidity provision in decentralized exchanges with utility indifference market makers.
problem Impermanent loss in decentralized exchanges without transaction fees.
method Mathematical formulation of liquidity provision, focusing on utility indifference market makers.
result No-arbitrage conditions and optimal arbitrage strategies are established.
We introduce a class of utility-based market makers that always accept orders at their risk-neutral prices. We derive necessary and sufficient conditions for such market makers to have bounded loss. We prove that hyperbolic absolute risk aversion utility market makers are equivalent to weighted pseudospherical scoring …
New automated market makers for multi-asset trading.
problem Liquidity management in multi-asset trading.
method Derived from self-financing transactions and rebalancing principles.
result Constant product market maker as a special case.
This research improves capital efficiency and impermanent loss in cryptocurrency markets using multi-token trading pools.
problem Poor impermanent loss and capital efficiency in automated market makers.
method Analysis and construction of a multi-token token proactive market maker (MPMM).
result MPMM shows better impermanent loss and capital efficiency than comparable market makers.
Market stability depends on a fundamental value anchor, not price crashes.
problem Stability of order-book markets under fundamental anchoring.
method Analytical model and empirical analysis of six transmission channels.
result Fundamental anchoring stabilizes markets by mean-reverting prices and refilling books; removing the anchor leads to market failure.
This paper solves optimal market making for multiple goods, including bundling, under adverse selection.
problem Designing optimal market making mechanisms for multiple goods and adverse selection.
method Formulated as an optimal transport problem with geometric constraints, using differentiable economics.
result Optimal market making mechanisms can exploit bundling to improve prices and accept payments in kind.
Study shows maker-taker fees improve market efficiency but increase costs.
problem Impact of maker-taker fees on total cost of taking orders.
method Agent-based simulation model for financial markets.
result Maker-taker fees increase total costs but improve market efficiency.
New method finds better arbitrage opportunities in AMMs.
problem Finding optimal arbitrage trades in multi-token AMMs.
method Closed-form solutions using convex optimisation.
result Better arbitrage opportunities than traditional methods.
Modeling financial chaos with market makers' risk appetite.
problem Unpredictable price changes in financial markets.
method Using Hamiltonian approach with anharmonic oscillators and nonlinear coupling.
result Market makers' risk appetite determines chaotic dynamics in financial markets.
Maker-taker fees can prevent algorithmic cooperation in market making, but not always.
problem Unexpected cooperation among independent algorithms in market making.
method Modeling market making as a repeated game, experimental analysis of transaction costs and rebates.
result Maker-taker fee models can destabilize cooperation, but not always with a specific relationship between costs and rebates.
The process of liquidity provision in financial markets can result in prolonged exposure to illiquid instruments for market makers. In this case, where a proprietary position is not desired, pro-actively targeting the right client who is likely to be interested can be an effective means to offset this position, rather …
In this paper we extend the market-making models with inventory constraints of Avellaneda and Stoikov ("High-frequency trading in a limit-order book", Quantitative Finance Vol.8 No.3 2008) and Gueant, Lehalle and Fernandez-Tapia ("Dealing with inventory risk", Preprint 2011) to the case of a rather general class of mid…
Following the recent literature on make take fees policies, we consider an exchange wishing to set a suitable contract with several market makers in order to improve trading quality on its platform. To do so, we use a principal-agent approach, where the agents (the market makers) optimise their quotes in a Nash equilib…
G3M impermanent losses are a key issue in decentralized finance, affecting diversification benefits.
problem Impermanent losses in G3M market makers due to negative convexity.
method Established non-arbitrage bounds and analyzed empirical data.
result Median liquidity pools have net nil ROI when Impermanent Losses are considered.
Study shows informed traders harm market makers but price discovery benefits outweigh costs.
problem Informed traders' impact on market makers' profitability.
method Agent-based model with heterogeneous learning agents, multi-agent reinforcement learning.
result Informed market order flow is harmful when aggregate informedness is low but beneficial as it increases.
Modeling market makers' quoting strategies to understand price impact.
problem Understanding how price impact arises from market makers' quoting strategies.
method Modeling market making as a dynamic auction using Stochastic Differential Games and finding Nash Equilibrium.
result The price impact function derived from market makers' strategies matches the Almgren-Chriss model.
Study applies market microstructure to Cuban informal currency market, finding market makers improve liquidity.
problem Understanding dynamics of informal currency markets.
method Modeling bid/ask intentions using Limit Order Book, applying Avellaneda-Stoikov model with Market Maker.
result Market Maker improves market quality and bid/ask dynamics.
This research compiles knowledge on decentralized exchanges with AMM protocols.
problem Improving and developing AMM-based decentralized exchanges.
method Established a general AMM framework, compared mechanics, discussed security and privacy.
result Illustrated conservation and slippage functions of AMM protocols.
New metric to measure liquidity position PNL, delta hedging algorithm for automated market makers.
problem Vulnerability of liquidity positions to price changes in underlying assets.
method Proposes a new metric for measuring PNL, delta hedging algorithm for various AMMs.
result New metric more accurately measures net value change due to price movement.
Market maker handles negative prices with unique asset swapping.
problem Handling negative prices in financial markets.
method Unique market mechanism with numeraire currency, liquidity extensions.
result Liquidity fingerprint and payoff compared to established models.
Geometric framework for CFMMs simplifies many results.
problem Understanding the behavior of CFMMs without strong conditions.
method Developed a geometric framework encompassing known results.
result CFMMs have a canonical trading function with specific properties.
The paper analyzes CFMMs to ensure accurate price reporting.
problem Ensuring accurate price reporting for CFMMs.
method Analyzes CFMMs under general assumptions to incentivize correct price reporting.
result Agents are incentivized to correctly report asset prices in a computationally efficient way.
We consider the issue of a market maker acting at the same time in the lit and dark pools of an exchange. The exchange wishes to establish a suitable make-take fees policy to attract transactions on its venues. We first solve the stochastic control problem of the market maker without the intervention of the exchange. T…
This paper examines the uniform properties of AMMs in cryptocurrency markets.
problem Theoretical uniformity of AMMs despite diverse strategies.
method Derives a universal formula for liquidity provisioning and compares models.
result Constant function and token swap models are equivalent under uniform liquidity.
Investigates optimal strategies for market makers using internal liquidity.
problem Optimizing strategies for market makers with internal liquidity.
method Investigates optimal multi-objective strategy for market makers with internal liquidity.
result Draws important qualitative insights for real-world trading.
Study shows market makers can cooperate without communication.
problem Concerns of collusion in AI-driven market-making.
method Formulated as a repeated game, studied with Q-learning.
result Market makers can learn cooperative strategies without communication.
In most OTC markets, a small number of market makers provide liquidity to other market participants. More precisely, for a list of assets, they set prices at which they agree to buy and sell. Market makers face therefore an interesting optimization problem: they need to choose bid and ask prices for making money while …
Study liquidity provision with exogenous competition using a reference market maker.
problem Liquidity provision in the presence of exogenous competition.
method Model a reference market maker who optimizes posted depths, competing market makers using a rule of thumb.
result Model admits approximate closed-form solution for a linear-quadratic goal functional.
Study shows marketable order routing to wholesalers benefits all traders, leading to lower market depth and price volatility.
problem Determining the preference of retail traders for marketable order routing.
method Two models: one for market makers competing for retail order flow (Bertrand model) and another for price-taking competitive liquidity providers (open exchange model).
result Routing marketable orders to wholesalers is preferred by all traders, leading to mean reverting inventories and lower market depth.
Paper models limit order book with informed traders and market makers.
problem Modeling the limit order book with heterogeneous market participants.
method Agent-based model with four types of participants: informed traders, noise traders, informed market makers, and noise market makers. Based on Glosten-Milgrom and Huang-Rosenbaum-Saliba approaches.
result Derived the static limit order book characteristics and compared them with existing models.
Model shows phase transitions in asset pricing with market maker incentives.
problem Analyzing asset pricing with market maker profit incentives.
method Stochastic game theory, neural networks.
result Equilibrium experiences three phases: linear pricing, mid-price with spread, and metastable state.
The paper finds optimal levels for traders in mean-reverting markets.
problem Determining optimal levels for traders in mean-reverting markets.
method Analytical framework using heat potentials.
result Developed an analytical solution for optimal levels.
Optimal dynamic fees found for AMMs to deter arbitrageurs and attract noise traders.
problem Optimizing fees in AMMs to balance against arbitrage and noise trading.
method Approximate closed-form solutions to control problem, study of fee structure.
result Two distinct fee regimes identified: high fees to deter arbitrage, low fees to attract noise traders.
Pari-mutuel markets are trading platforms through which the common market maker simultaneously clears multiple contingent claims markets. This market has several distinctive properties that began attracting the attention of the financial industry in the 2000s. For example, the platform aggregates liquidity from the ind…
Market makers play an important role in providing liquidity to markets by continuously quoting prices at which they are willing to buy and sell, and managing inventory risk. In this paper, we build a multi-agent simulation of a dealer market and demonstrate that it can be used to understand the behavior of a reinforcem…