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The financial industry has undergone a significant transition from the London Interbank Offered Rates (LIBORs) to Risk Free Rates (RFRs) such as, e.g., the Secured Overnight Financing Rate (SOFR) in the U.S. and the Cash Rate (AONIA) in Australia, as primary benchmark rates for borrowing costs. The paper examines the pricing and hedging method for financial products in a cross-currency framework with the special emph…
We propose a method to infer lead-lag networks of traders from the observation of their trade record as well as to reconstruct their state of supply and demand when they do not trade. The method relies on the Kinetic Ising model to describe how information propagates among traders, assigning a positive or negative "opinion" to all agents about whether the traded asset price will go up or down. This opinion is reflect…
The cross-currency basis, which is the basis spread added mainly to the U.S. dollar London Interbank Offered Rate (USD LIBOR) when the USD is funded via foreign exchange (FX) swaps using the Japanese yen or the euro as a funding currency, has been widening globally since the beginning of 2014. This development is driven by (1) increased demands for U.S. dollars resulting from a divergence in the monetary policy betwe…
We examine how heavy-tailed liquidity demand changes price discovery in a sequential limit order book with asymmetric information. In our setting, liquidity suppliers observe aggregate order flow, not its decomposition into informed demand and uninformed liquidity shocks. With heavy-tailed uninformed aggregated order flow, large trades remain plausibly uninformed over a wider range of depths, flattening price impact …
We show that net demand for liquidity by algo strategies is identifiable from its trade and price history alone, with no knowledge of its signal or optimization problem. An exact multi-period regret decomposition implies that the sign of this statistic classifies a linear strategy as a net liquidity consumer or provider, recovering the Kyle (1985) informed-trader/market-maker dichotomy from observables alone. Under a…
Hit ratio is a common service metric for electronic corporate bond market making, but raw hit-ratio targets can be economically misleading when client flow has heterogeneous adverse-selection content. This paper extends a stochastic-control framework for OTC bond RFQ market making with hit-ratio constraints by replacing raw hit ratio with a residual-quality-adjusted hit ratio. The key modelling distinction is that ad…
We introduce a structural framework for the geometry of financial order books in which liquidity, supply, and demand are treated as emergent observables rather than primitive market variables. The market is modeled as a relational substrate without assumed metric, temporal, or price coordinates. Observable quantities arise only through observation, implemented here as a reduction of relational degrees of freedom foll…
We propose a structural framework for the geometry of financial order books in which liquidity, supply, and demand are treated as emergent observables rather than primitive economic variables. The market is modeled as an inflationary relational system without assumed metric, temporal, or price coordinates. Observable quantities arise only through projection, implemented here via spectral embeddings of the graph Lapla…
We study the economic viability of liquidity provision in decentralised exchanges (DEXs) within a structural framework in which market outcomes are endogenous. We formulate strategic interactions as a sequential game: a risk-averse liquidity provider (LP) sets the supply of liquidity in the DEX and a costly dynamic replication strategy in a centralised exchange (CEX), price-sensitive traders determine trading volumes…
We establish a general matched filter principle for order flow normalization: optimal normalization must match the scaling behaviour of the signal-generating process. For capacity-constrained institutional investors, market capitalization normalization ($S^{MC}$) is the matched filter; for volume-targeting traders (e.g., VWAP/TWAP algorithms), trading value normalization ($S^{TV}$) is optimal. Monte Carlo simulations…
Prediction markets have gained adoption as on-chain mechanisms for aggregating information, with platforms such as Polymarket demonstrating demand for stablecoin-denominated markets. However, denominating in non-interest-bearing stablecoins introduces inefficiencies: participants face opportunity costs relative to the fiat risk-free rate, and Bitcoin holders in particular lose exposure to BTC appreciation when conver…
In this paper, we introduce a suite of models for price-aware automated market making platforms willing to optimize their quotes. These models incorporate advanced price dynamics, including stochastic volatility, jumps, and microstructural price models based on Hawkes processes. Additionally, we address the variability in demand from liquidity takers through models that employ either Hawkes or Markov-modulated Poisso…
Portfolio management (PM) is a fundamental financial trading task, which explores the optimal periodical reallocation of capitals into different stocks to pursue long-term profits. Reinforcement learning (RL) has recently shown its potential to train profitable agents for PM through interacting with financial markets. However, existing work mostly focuses on fixed stock pools, which is inconsistent with investors' pr…
In this paper, we deal with an axiomatic approach to default risk. We introduce the notion of a default risk measure, which generalizes the classical probability of default (PD), and allows to incorporate model risk in various forms. We discuss different properties and representations of default risk measures via monetary risk measures, families of related tail risk measures, and Choquet capacities. In a second step,…
In decentralized finance ("DeFi"), automated market makers (AMMs) enable traders to programmatically exchange one asset for another. Such trades are enabled by the assets deposited by liquidity providers (LPs). The goal of this paper is to characterize and interpret the optimal (i.e., profit-maximizing) strategy of a monopolist liquidity provider, as a function of that LP's beliefs about asset prices and trader behav…
We coin the term *Protocols for Loanable Funds (PLFs)* to refer to protocols which establish distributed ledger-based markets for loanable funds. PLFs are emerging as one of the main applications within Decentralized Finance (DeFi), and use smart contract code to facilitate the intermediation of loanable funds. In doing so, these protocols allow agents to borrow and save programmatically. Within these protocols, inte…
We develop an optimal currency hedging strategy for fund managers who own foreign assets to choose the hedge tenors that maximize their FX carry returns within a liquidity risk constraint. The strategy assumes that the offshore assets are fully hedged with FX forwards. The chosen liquidity risk metric is Cash Flow at Risk (CFaR). The strategy involves time-dispersing the total nominal hedge value into future time buc…
We study a continuous-time version of the intermediation model of Grossman and Miller (1988). To wit, we solve for the competitive equilibrium prices at which liquidity takers' demands are absorbed by dealers with quadratic inventory costs, who can in turn gradually transfer these positions to an exogenous open market with finite liquidity. This endogenously leads to transient price impact in the dealer market. Smoot…