An introduction to econophysics: correlations and complexity in finance
An introduction to econophysics: correlations and complexity in finance
Competitive algorithms for VWAP and limit order trading
EC '04 Proceedings of the 5th ACM conference on Electronic commerce
(In)Stability properties of limit order dynamics
EC '06 Proceedings of the 7th ACM conference on Electronic commerce
A practical liquidity-sensitive automated market maker
Proceedings of the 11th ACM conference on Electronic commerce
An optimization-based framework for automated market-making
Proceedings of the 12th ACM conference on Electronic commerce
A Multi-agent Prediction Market Based on Boolean Network Evolution
WI-IAT '11 Proceedings of the 2011 IEEE/WIC/ACM International Conferences on Web Intelligence and Intelligent Agent Technology - Volume 02
Proceedings of the 13th ACM Conference on Electronic Commerce
Rational market making with probabilistic knowledge
Proceedings of the 11th International Conference on Autonomous Agents and Multiagent Systems - Volume 2
A multi-agent prediction market based on partially observable stochastic game
Proceedings of the 13th International Conference on Electronic Commerce
Latency arbitrage, market fragmentation, and efficiency: a two-market model
Proceedings of the fourteenth ACM conference on Electronic commerce
A Practical Liquidity-Sensitive Automated Market Maker
ACM Transactions on Economics and Computation
A single issue negotiation model for agents bargaining in dynamic electronic markets
Decision Support Systems
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This paper studies market-makers, agents responsible for maintaining liquidity and orderly price transitions in markets. Market-makers include major firms making markets on global stock exchanges, as well as software agents that run behind the scenes on novel electronic markets like prediction markets. We use a sophisticated model of market-making to build richer agent-based models of markets and show how these models can be useful both in understanding properties of existing markets and in predicting the impacts of structural changes. For example, we show how competition among market-makers can lead to significantly faster price discovery following a jump in the true value of an asset. We also show that myopic profit-maximization, apart from leading to poor market quality, is sub-optimal even for a monopolistic market-maker. This observation leads to an interesting characterization of the market-maker's exploration-exploitation dilemma as a tradeoff between price discovery and profit-taking.