The study examines statistical properties of market price and liquidity responses.
problem Understanding the statistical properties of market price and liquidity responses.
method Utilized singular value decomposition to analyze interconnections and statistical characteristics of responses.
result Traded volumes play a critical role in price changes induced by liquidity changes.
Adaptive pricing framework for perpetual contracts using liquidity curves and oracles.
problem Ensuring stable and predictable pricing for perpetual contracts.
method Uses liquidity curves and on-chain oracles with parabolic and sigmoid functions to quote prices and fees.
result Ensures pricing stability and predictability through adaptive pricing framework.
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.
Optimal early liquidation strategy reduces financial losses during crises.
problem Substantial losses from simultaneous asset liquidation at depressed prices.
method Developed a worst-case approach for optimal early liquidation, considering uncertainty of other banks' decisions.
result Proposed robust optimal strategy maximizes liquid assets' value at clearing, even with uncertainty.
This paper models financial contagion with endogenously determined market liquidity.
problem Financial contagion and its impact on market liquidity during price drops.
method Developed a joint clearing system for interbank payments, asset prices, and market liquidity, with endogenous market capacity.
result Endogenous market liquidity significantly affects system risk during financial contagion.
Study optimal liquidation under high risk aversion and small price impact.
problem Optimal liquidation of options under high risk aversion and linear price impact.
method Analyzes Bachelier model with linear price impact, computes utility indifference prices, and finds asymptotically optimal portfolios.
result Establishes a scaling limit for vanishing price impact and computes corresponding utility indifference prices.
Develops optimal liquidation strategies with stochastic price impact.
problem Optimal liquidation under price impact with stochastic parameters.
method Coefficient expansion on Hamilton-Jacobi-Bellman equation, solving PDEs for value function and optimal strategy.
result Closed-form approximations to value function and optimal liquidation strategy.
Study liquidity dynamics in dealer markets with quadratic costs.
problem Understanding price formation in dealer markets with liquidity costs.
method Solve for competitive equilibrium prices in a continuous-time model with quadratic inventory costs.
result Endogenous transient price impact due to gradual position transfer.
Model quantifies market price of trading liquidity risk and market depth.
problem Analyzing the market price of trading liquidity risk and market depth.
method Introduced a framework to analyze market price of liquidity risk, derived inhomogeneous Bernoulli ODE, obtained closed form solutions.
result Market depth encapsulates the market price of liquidity risk.
The study examines when large trades are considered news or liquidity shocks in a market model.
problem Understanding when large trades are news or liquidity shocks in a market model.
method A sequential competitive limit order book model with asymmetric information and Student-t tails for liquidity demand.
result Heavy-tailed liquidity demand flattens and concavifies price impact, delaying price discovery.
Study liquidity provision in decentralized exchanges considering risk aversion and replication costs.
problem Economic viability of liquidity provision in decentralized exchanges (DEXs).
method Formulated strategic interactions as a sequential game with risk-averse LP, traders, and arbitrageurs.
result DEX liquidity depth is crucial for risk management, influenced by risk aversion and replication costs.
Study adapts liquidity model to equity auctions, revealing accelerated event rates and reduced price impact.
problem Understanding and predicting price dynamics in equity auctions.
method Adapted latent/revealed order book framework to equity auctions, measuring order submissions, cancellations, and diffusion rates.
result Equity auctions exhibit accelerated event rates leading to reduced price impact and decreased volatility.
New framework detects crypto wash trading using liquidity measures.
problem Detecting and monitoring wash trading in crypto assets.
method Developed a new framework to detect wash trading through real-time liquidity fluctuation measures.
result Joint elevation in liquidity jump and diffusion indicates wash trading in crypto assets.
Optimal trading and liquidation strategies with signals and regulatory constraints.
problem Optimal trading and liquidation in models with price predictions and regulatory limits.
method Almgren-Chriss model with general signals, target zone models, and lookback option analysis.
result Explicit formulas for optimal liquidation rates in Bachelier and Black-Scholes dynamics.
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.
Study optimal liquidation strategies on Uniswap v2/v3 considering price impact.
problem Optimal liquidation of large positions on Uniswap v2/v3 under transient price impact.
method Dynamic programming and numerical approximation for Uniswap v3, closed-form solutions for v2.
result Obtained optimal strategies for both Uniswap v2 and v3, showing how liquidity profile influences them.
Study optimal liquidation under price impact ambiguity.
problem Optimal liquidation under uncertainty about price impact parameters.
method Characterization of value function and optimal strategy via semi-linear PDE.
result Increased liquidation rates due to ambiguity aversion.
Model predicts asset prices from initial shocks using neural networks.
problem Missing data on actual asset liquidations limits model calibration.
method Dual neural network structure, first stage maps shocks to liquidations, second stage uses liquidations to predict prices.
result Model accurately predicts equilibrium prices from initial shocks without liquidation data.
Derives pricing formulas for liquidity tokens in CPMMs, showing riskless growth.
problem Liquidity token pricing and hedging in CPMMs.
method Derives risk-neutral pricing and hedging formulas for CPMM liquidity tokens using derivative pricing perspective.
result Shows that hedging CPMM liquidity tokens should grow at the risk-free rate, contradicting empirical observations.
Develops numerical methods for pricing exchange options in a market with limited liquidity.
problem Pricing European style exchange options in a market with finite liquidity.
method Integrates price impact into the dynamics of correlated assets using a controlled variate approach.
result Numerical pricing methods for exchange options are developed and validated.
Solves optimal liquidation problem for stock price following geometric Brownian motion.
problem Optimal liquidation problem for stock price process following geometric Brownian motion.
method Functional analysis tools; working in terms of cash.
result Explicit solution to the problem, extending to stochastic drift.
This paper analyzes liquidations in DeFi protocols, showing how price volatility can lead to significant losses.
problem Price volatility undermines overcollateralization in DeFi protocols, leading to potential losses.
method Empirical analysis of Compound's PLFs, examining participants' behavior and risk-appetite.
result Price volatility can result in over 10m USD becoming liquidable with only 3% price change.
This paper develops a model of liquidity provision in financial markets by adapting the Madhavan, Richardson, and Roomans (1997) price formation model to realistic order books with quote discretization and liquidity rebates. We postulate that liquidity providers observe a fundamental price which is continuous, efficien…
Study liquidity impact on spread option pricing.
problem Imperfect liquidity in stock markets affects option pricing.
method Developed partial-impact and full-impact models to analyze European spread options.
result Full impact model leads to higher option prices due to increased stock buying.
Blockchain markets with paid-priority trading can lead to biased prices and reduced liquidity.
problem Discrete clearing and paid-priority in blockchain markets lead to biased prices and reduced liquidity.
method Developed a model to evaluate the viability of blockchain markets under discrete clearing and paid-priority.
result Paid-priority ordering induces endogenous selection, leading to biased prices and reduced liquidity.
The paper analyzes optimal liquidation strategies for cryptocurrencies considering both temporary and permanent price impacts.
problem Optimal liquidation strategies for cryptocurrencies in the presence of price impacts.
method Analytical and numerical solutions, including finite differences and optimal policy iteration.
result Optimal liquidation policies vary based on the functional form of temporary and permanent price impacts.
Cryptocurrencies' value tied to liquidity, not intrinsic, making stability uncertain.
problem Cryptocurrencies lack tangible value, leading to price instability.
method Examined using asset flow equations and experimental markets.
result Cryptocurrency prices are influenced by liquidity, not intrinsic value.
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 liquidity constraints, we focus on the case where the market is completely static in …
Tick-by-tick liquidity provision aims to maximize fees and reserves.
problem Maximizing fees and reserves in concentrated liquidity.
method Convex optimization for tick-level liquidity provision.
result Concentrating liquidity around current price is not always best.
Model shows liquidity crises linked to past volatility and price trends.
problem Liquidity crises driven by past volatility and price trends.
method Stylized order book model and linear/non-linear Hawkes process.
result Liquidity crises arise with probability one in a phase transition scenario.
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.
The study examines pricing American options with both exogenous and endogenous transaction costs.
problem Pricing American options with transaction costs and liquidity risks.
method Modeling liquidity risks as a mean-reverting process and transaction costs as proportional to trading amount. Two nonlinear PDEs are used to characterize option values. Numerical solution via ADI method and model calibration using maximum likelihood estimation.
result The model incorporating liquidity risks significantly outperforms the Leland model.
The paper models battery valuation in intraday electricity markets, incorporating liquidity costs.
problem Valuing batteries in intraday electricity markets considering liquidity costs.
method Stochastic model for mid-prices combined with a deterministic model for liquidity costs, using dynamic programming for optimization.
result Liquidity costs significantly impact battery valuation, especially with multiple batteries.
New data-driven HFT measures distinguish supply and demand strategies, improving price informativeness.
problem Lack of effective measures to distinguish between HFT supply and demand strategies.
method Trained machine learning models on proprietary HFT data and applied to public intraday data.
result Measures outperform conventional proxies and capture HFT's temporal dynamics.
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 …
We refine toxicity bounds for dynamic liquidation incentives in CP-AMM systems.
problem Ensuring stability in dynamic liquidation incentives in automated market makers.
method Derived state-dependent toxicity bounds for dynamic liquidation incentives, reconciling them with CP-AMM price dynamics.
result State-dependent bounds and liquidity-depth-only condition for dynamic liquidation incentives.
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.
The common wisdom argues that, in general, large trades cause large price changes, while small trades cause small price changes. However, for extremely large price changes, the trade size and news play a minor role, while the liquidity (especially price gaps on the limit order book) is a more influencing factor. Hence,…
We introduce a microscopic model for the dynamics of the order book to study how the lack of liquidity influences price fluctuations. We use the average density of the stored orders (granularity g) as a proxy for liquidity. This leads to a Price Impact Surface which depends on both volume ω and g. The dependence …
In this article, we develop a general framework to study optimal execution and to price block trades. We prove existence of optimal liquidation strategies and we provide regularity results for optimal strategies under very general hypotheses. We exhibit a Hamiltonian characterization for the optimal strategy that can b…
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.
MiFID II impacts European stock liquidity and price formation.
problem Impact of MiFID II on European stock liquidity and price formation.
method Analyzed effects of MiFID II on European stock markets, focusing on intraday and closing auction liquidity and tick size changes.
result Closing auction volumes increased and price formation became more efficient after MiFID II.
The paper models intraday trading with TWAP and VWAP benchmarks, showing how they affect price pressure and volatility.
problem Analyzing the impact of TWAP and VWAP benchmarks on intraday trading and price pressure.
method Developed a continuous-time model to solve for competitive and non-price-taking equilibria, providing numerical illustrations.
result TWAP and VWAP benchmarks reduce market liquidity and increase price volatility compared to terminal trading targets.
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.
New dynamic curves improve cryptocurrency exchange liquidity.
problem Low liquidity and arbitrage opportunities in existing AMMs.
method Dynamic curves adjust AMM function based on market prices.
result Maintains liquidity and total LP value over wide market price ranges.
Study optimal liquidation in markets with endogenous pressure to sell.
problem Optimal liquidation in markets with endogenous pressure to sell.
method Endogenously modeling price pressure, solving singular ODEs numerically.
result Optimal liquidation strategy consistent with square-root law.
A pricing formula for discount bonds, based on the consideration of the market perception of future liquidity risk, is established. An information-based model for liquidity is then introduced, which is used to obtain an expression for the bond price. Analysis of the bond price dynamics shows that the bond volatility is…
The paper develops a new framework for pricing and hedging liquidity in crypto markets.
problem Arbitrage and risk management in crypto market making.
method Developed a new mathematical framework using a coordinate system defined by price and intrinsic liquidity.
result Established a linear dependence of asset reserves and value functions on intrinsic liquidity, facilitating arbitrage-free pricing and delta hedging.