Decentralised finance and automated market making: Execution and speculation

IF 1.9 3区 经济学 Q2 ECONOMICS
Álvaro Cartea , Fayçal Drissi , Marcello Monga
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引用次数: 0

Abstract

Automated market makers (AMMs) are a new prototype of decentralised exchanges which are revolutionising market interactions. The majority of AMMs are constant product markets (CPMs) where exchange rates are set by a trading function. This work studies optimal trading and statistical arbitrage in CPMs where balancing exchange rate risk and execution costs is key. Empirical evidence shows that execution costs are accurately estimated by the convexity of the trading function. These convexity costs are linear in the trade size and are nonlinear in the depth of liquidity and in the exchange rate. We develop models for when exchange rates form in a competing centralised exchange, in a CPM, or in both venues. Finally, we derive computationally efficient strategies that account for stochastic convexity costs and we showcase their out-of-sample performance.
去中心化金融和自动化做市:执行和投机
自动做市商(AMMs)是去中心化交易所的新原型,正在彻底改变市场互动。大多数amm是固定产品市场(cpm),其中汇率由交易函数设定。本文研究了cpm中的最优交易和统计套利,其中平衡汇率风险和执行成本是关键。经验证据表明,交易函数的凸性可以准确地估计执行成本。这些凸性成本在交易规模上是线性的,在流动性深度和汇率上是非线性的。我们开发了汇率在竞争的集中式交易所、CPM或两者中何时形成的模型。最后,我们推导了计算效率高的策略,这些策略考虑了随机凸性成本,并展示了它们的样本外性能。
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来源期刊
CiteScore
3.10
自引率
10.50%
发文量
199
期刊介绍: The journal provides an outlet for publication of research concerning all theoretical and empirical aspects of economic dynamics and control as well as the development and use of computational methods in economics and finance. Contributions regarding computational methods may include, but are not restricted to, artificial intelligence, databases, decision support systems, genetic algorithms, modelling languages, neural networks, numerical algorithms for optimization, control and equilibria, parallel computing and qualitative reasoning.
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