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.
Model liquidity premia using a risk-sharing economy with quadratic costs.
problem Understanding the cross-section of liquidity premia earned by assets with different trading costs.
method Developed a risk-sharing economy model with quadratic transaction costs, leading to matrix-valued Riccati equations for equilibrium.
result Calibrated model to time series data, revealing liquidity premia across assets with varying trading costs.
This paper analyzes stock market data to predict share prices using regression models.
problem Predicting stock prices in the share market of Bangladesh.
method Thorough linear regression analysis on Dhaka Stock Exchange data, compared with random forest.
result Random forest model performs better than linear regression for predicting stock prices.
Paper shows how to replicate payoffs without oracles in CFMMs.
problem Replicating payoffs without oracles in CFMMs.
method Using liquidity provider shares in CFMMs to match any monotonic payoff.
result Explicit method and formula for trading functions and earnings.
A liquidity measure based on consideration and price range is proposed. Initially defined for daily data, Liquidity Index (LIX) can also be estimated via intraday data by using a time scaling mechanism. The link between LIX and the liquidity measure based on weighted average bid-ask spread is established. Using this li…
Study compares market microstructure between two South African exchanges.
problem Understanding price response dynamics and market microstructure differences between two South African exchanges.
method Comparative analysis of returns distributions, auto-correlations, price impact, and trading costs on different time scales.
result Similar stylized facts emerge as measurement time scale increases, but price responses vary significantly.
Study multi-agent RL in OTC markets, learning from agents' interactions.
problem Designing efficient RL solutions for OTC market interactions.
method Parameterized reward functions, shared policy learning, RL calibration.
result Agents learn to balance hedging and skewing in market simulations.
Study on liquidity providers' performance in decentralized exchanges.
problem Unclear profitability of liquidity providers in decentralized exchanges.
method Reconstructing LP PnL dynamics from on-chain events, introducing a new metric.
result Only about one out of six LPs avoids losses, suggesting open questions about LP participation motives.
When executing their orders, investors are proposed different strategies by brokers and investment banks. Most orders are executed using VWAP algorithms. Other basic execution strategies include POV (also called PVol) -- for percentage of volume --, IS -- implementation shortfall -- or Target Close. In this article ded…
We propose an option approach for pricing bond illiquidity that is reminiscent of the celebrated work of Longstaff (1995) on the non-marketability of some non-dividend-paying shares in IPOs. This approach describes a quite common situation in the fixed income market: it is rather usual to find issuers that, besides liq…
Study factors affecting liquidity on decentralized exchanges, introducing new metrics.
problem Understanding and predicting liquidity on decentralized exchanges (DEXs).
method Analyzes platform, blockchain, token pair, and liquidity pool factors; introduces new metrics.
result Identifies how various factors affect liquidity through concentration and total value locked.
We study optimal liquidation of a trading position (so-called block order or meta-order) in a market with a linear temporary price impact (Kyle, 1985). We endogenize the pressure to liquidate by introducing a downward drift in the unaffected asset price while simultaneously ruling out short sales. In this setting the l…
New RL framework simulates financial market dynamics.
problem Complex financial market dynamics under various scenarios.
method Two RL families learn simultaneously, using Deep RL and parametrized reward.
result Agents learn a shared policy for diverse behaviors.
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.
Optimal liquidation strategy for a risk-averse investor in a one-sided limit order book driven by a Levy process.
problem Balancing market risk and execution cost for a large share liquidation.
method Modeling the price process as a Levy process and solving a singular two-dimensional optimisation problem.
result Explicit expression for the optimal intervention boundary.
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 optimal investment policy, its implied welfare, liquidity premium, and trading volu…
Unihedge uses HTAX to create unlimited liquidity in prediction markets.
problem Limited liquidity and information incorporation issues in prediction markets.
method Introduces HTAX prediction markets with DPM derivatives and new incentive mechanisms.
result Unlimited liquidity and improved information incorporation in prediction markets.
We study risk-sharing economies where heterogenous agents trade subject to quadratic transaction costs. The corresponding equilibrium asset prices and trading strategies are characterised by a system of nonlinear, fully-coupled forward-backward stochastic differential equations. We show that a unique solution generally…
Uniswap V3 requires more decisions from liquidity providers, making it complex and risky.
problem Complexity and risk in liquidity provision on Uniswap V3.
method Developed a theoretical model and analyzed real data.
result Liquidity provision on Uniswap V3 is highly complex and risky.
This paper studies liquidity providers in decentralized exchanges.
problem Understanding how liquidity providers behave in DEXes.
method Analyzed operations on Uniswap, measured investment strategy, returns, and risks.
result Liquidity providers benefit from transaction fees and determine their strategy based on market changes.
Optimal design of automated market makers for decentralized exchanges.
problem Maximizing utility for liquidity providers in decentralized exchanges.
method Modeling a risk-averse liquidity provider's optimal strategy and the optimal design of automated market makers.
result The optimal unit trading fee increases with asset volatility.
Passive investing can incur hidden costs due to market timing inefficiencies.
problem Hidden costs in passive investing due to market timing inefficiencies.
method Analysis of passive investing strategies, including gradual share acquisition and post-announcement trading.
result Post-announcement trading can earn significant profits, often exceeding 1%.
JIT liquidity providers can sometimes reduce overall market liquidity by crowding out passive LPs.
problem JIT liquidity providers can reduce overall market liquidity by crowding out passive LPs.
method Game-theoretic model with asymmetrically informed agents to analyze JIT liquidity provision in blockchain-based decentralized exchanges.
result JIT LPs only provide liquidity to uninformed orders and crowd out passive LPs when order volume is not sufficiently elastic to pool depth, potentially reducing overall market liquidity.
Study analyzes impact of concentrated liquidity on trading fees and provider returns.
problem Impact of concentrated liquidity on trading fees and provider returns.
method Comparison of average liquidity provider returns before and after concentrated liquidity introduction; quantification of fundamental strategies performance.
result Concentrated liquidity strategies outperform in certain trading pairs and market conditions.
We introduce a price impact model which accounts for finite market depth, tightness and resilience. Its coupled bid- and ask-price dynamics induce convex liquidity costs. We provide existence of an optimal solution to the classical problem of maximizing expected utility from terminal liquidation wealth at a finite plan…
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.
Uniswap analyzes liquidity provider risk and impermanent loss.
problem Risk and loss for liquidity providers in decentralized exchanges.
method Improved impermanent loss function for Uniswap v2, v3 comparison.
result Improved impermanent loss function for Uniswap v2.
High-fee pools attract more liquidity but execute less volume; low-fee pools have more stable LPs.
problem Optimal liquidity supply and execution on decentralized exchanges with fixed gas costs.
method Analysis of Uniswap data to compare high- and low-fee pools.
result Fragmented liquidity leads to more LPs and competition, improving overall market efficiency.
dYdX updates liquidity provider incentives to enhance trading efficiency.
problem Incentivizing liquidity providers to maintain efficient market structures.
method Analyzed various metrics (makerVolume, depths, spreads) and used historical trades to update the LP Incentives Programme.
result Updated the LP Incentives Programme to encourage more active and efficient liquidity.
The study introduces new liquidity measures and models for assets with extreme liquidity.
problem Modeling assets with extreme liquidity, especially in crypto markets.
method Developed innovative liquidity premium measures, liquidity-adjusted return and volatility models, and used ARMA-GARCH/EGARCH models.
result The liquidity-adjusted models outperform traditional models in predicting asset performance at extreme liquidity.
Model shows incentives in shared order book can lead to free-rider problem.
problem Incentives in shared order books can lead to free-rider problem.
method Developed a Principal-Agent model with CARA utility functions.
result Equilibrium analysis shows incentives can lead to reduced competition.
Framework to generalize impermanent loss for decentralized exchanges.
problem Difficult analysis of impermanent loss due to diverse market maker algorithms and fee structures.
method Developed a framework to generalize impermanent loss for constant function market makers with optional concentrated liquidity.
result Identified conditions for profitability of liquidity provisioning.
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.
Paper analyzes liquidity for everlasting options in DeFi, offering strategies to reduce costs.
problem Challenges of perpetual derivatives in decentralized finance markets.
method Dynamic proactive market maker model, simulations, hedging strategies.
result Liquidity providers can achieve net positive PnL with effective strategies.
Optimizes liquidity provision intervals for profitable AMM participation.
problem Financial losses from poor liquidity provision intervals and reallocation costs.
method Developed a tractable stochastic optimization problem.
result Computes optimal liquidity provision intervals for profitable liquidity concentration.
The paper analyzes game theory in convertible contracts during liquidity events.
problem Optimizing payments in convertible contracts during liquidity events.
method Defined a general model for games, showed non-existence of pure strategy Nash equilibria, developed algorithms for computing equilibria.
result Optimum pure strategy Nash equilibria exist when all contracts are of the same type (SAFE).
Tether's dominance in U.S. Treasury bills lowers bond yields by 24 basis points.
problem Impact of Tether's market share on U.S. Treasury bill yields.
method Baseline semi-log time trend model and threshold regression analysis.
result Tether's market share reduces 1-month yields by 24 basis points.
Liquidation is the process of selling a large number of shares of one stock sequentially within a given time frame, taking into consideration the costs arising from market impact and a trader's risk aversion. The main challenge in optimizing liquidation is to find an appropriate modeling system that can incorporate the…
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 delivering low costs of transaction. Providing a rigorous and empirically relevant d…
Study shows AMM liquidity providers lose more than they earn, with varying profitability across pairs.
problem Arbitrage losses by liquidity providers on AMMs exceed fees earned.
method Empirical study of losses and profitability across different AMM pools and block times.
result Uniswap v2 pools are more profitable for passive LPs than Uniswap v3.
The article provides formulas to hedge impermanent loss in decentralized markets.
problem Impermanent loss in concentrated liquidity provision in decentralized markets.
method Analytical characterizations and static replication formulas using European calls or puts.
result Static replication formulas accurately hedge impermanent loss.
Unified framework for optimal liquidation with small market impact and semimartingale strategies.
problem Optimal liquidation under small market impact and portfolio liquidation.
method Semimartingale strategies and convergence results for BSDEs with singular terminal conditions.
result Unified framework for embedding two common liquidation models and microscopic foundation for semimartingale strategies.
This paper provides a framework for modeling the financial system with multiple illiquid assets during a crisis. This work generalizes the paper by Amini, Filipovic and Minca (2016) by allowing for differing liquidation strategies. The main result is a proof of sufficient conditions for the existence of an equilibrium …
In this article, we present a discrete time modeling framework, in which the shape and dynamics of a Limit Order Book (LOB) arise endogenously from an equilibrium between multiple market participants (agents). We use the proposed modeling framework to analyze the effects of trading frequency on market liquidity in a ve…
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.
Novel method reconstructs liquidity data for CLMMs, optimizing dynamic liquidity strategies.
problem Challenges in evaluating and optimizing CLMMs due to lack of historical liquidity data.
method Reconstructs historical liquidity states from swap transaction data using machine learning.
result Identifies outperformance of dynamic liquidity strategies over uniform allocation benchmarks.
UAMM uses external market prices to improve AMM efficiency and reduce liquidity provider risk.
problem Traditional AMMs lack consideration of external markets and risk management.
method UAMM calculates prices by incorporating external market prices and impermanent loss, maintaining constant product curve properties.
result UAMM eliminates arbitrage opportunities when external market prices are efficient, reducing liquidity provider risk.
Study calculates liquidity costs for delta hedging of European options.
problem Determining expected liquidity costs in delta hedging.
method Derives an integration formula for liquidity costs, including option prices and delta process.
result Expected liquidity costs can be calculated faster than Monte Carlo simulations.