Papers, wiki, Option Blackboard, encyclopedia, and cards.
We build an optimal portfolio liquidation model for OTC markets, aiming at minimizing the trading costs via the choice of the liquidation time. We work in the Locally Linear Order Book framework of \cite{toth2011anomalous} to obtain the market impact as a function of the traded volume. We find that the optimal terminal time for a linear execution of a small order is proportional to the square root of the ratio betwee…
We consider trading against a hedge fund or large trader that must liquidate a large position in a risky asset if the market price of the asset crosses a certain threshold. Liquidation occurs in a disorderly manner and negatively impacts the market price of the asset. We consider the perspective of small investors whose trades do not induce market impact and who possess different levels of information about the liqui…
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…
This article is part of a comprehensive research project on liquidity risk in asset management, which can be divided into three dimensions. The first dimension covers the modeling of the liability liquidity risk (or funding liquidity), the second dimension is dedicated to the modeling of the asset liquidity risk (or market liquidity), whereas the third dimension considers the management of the asset-liability liquidi…
This article is part of a comprehensive research project on liquidity risk in asset management, which can be divided into three dimensions. The first dimension covers liability liquidity risk (or funding liquidity) modeling, the second dimension focuses on asset liquidity risk (or market liquidity) modeling, and the third dimension considers the asset-liability management of the liquidity gap risk (or asset-liability…
We develop a continuous-time structural dynamic model to determine the exact insolvency regions of banks arising from the non-linear interaction between liquidity and credit risk. While existing literature predominantly treats these risks in isolation or via reduced-form specifications, we explicitly model the feedback loop where funding shocks and regulatory constraints force balance-sheet adjustments that can lead …
This study examines active liquidity management by Indian open-ended equity mutual funds. We find that fund managers respond to inflows by increasing cash holdings, which are later used to purchase less-liquid stocks at favourable valuations. Funds with less liquid portfolios tend to maintain larger cash reserves to manage flows. Funds that make active liquidity choices yield statistically and economically significan…
We develop a liquidity-sensitive multivariate volatility framework to improve the estimation of time-varying covariance structures under market frictions. We introduce two novel portfolio-level liquidity measures, liquidity jump and liquidity diffusion, which capture magnitude and volatility of liquidity fluctuation, respectively, and construct liquidity-adjusted return and volatility that reflect real-time liquidity…
We develop a new framework to detect wash trading in crypto assets through real-time liquidity fluctuation. We propose that short-term price jumps in crypto assets results from wash trading-induced liquidity fluctuation, and construct two complementary liquidity measures, liquidity jump (size of fluctuation) and liquidity diffusion (volatility of fluctuation), to capture the behavioral signature of wash trading. Usin…
Constant product markets with concentrated liquidity (CL) are the most popular type of automated market makers. In this paper, we characterise the continuous-time wealth dynamics of strategic LPs who dynamically adjust their range of liquidity provision in CL pools. Their wealth results from fee income, the value of their holdings in the pool, and rebalancing costs. Next, we derive a self-financing and closed-form op…
We examine how the introduction of concentrated liquidity has changed the liquidity provision market in automated market makers such as Uniswap. To this end, we compare average liquidity provider returns from trading fees before and after its introduction. Furthermore, we quantify the performance of a number of fundamental concentrated liquidity strategies using historical trade data. We estimate their possible retur…
Price impact of a trade is an important element in pre-trade and post-trade analyses. We introduce a framework to analyze the market price of liquidity risk, which allows us to derive an inhomogeneous Bernoulli ordinary differential equation. We obtain two closed form solutions, one of which reproduces the linear function of the order flow in Kyle (1985) for informed traders. However, when traders are not as asymmetr…
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…
We present a simulation-and-regression method for solving dynamic portfolio allocation problems in the presence of general transaction costs, liquidity costs and market impacts. This method extends the classical least squares Monte Carlo algorithm to incorporate switching costs, corresponding to transaction costs and transient liquidity costs, as well as multiple endogenous state variables, namely the portfolio value…
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 very general setting. In particular, we demonstrate the dual effect of high trading frequency. On the …
We postulates, and then show experimentally, that liquidity deficit is the driving force of the markets. In the first part of the paper a kinematic of liquidity deficit is developed. The calculus-like approach, which is based on Radon--Nikodym derivatives and their generalization, allows us to calculate important characteristics of observable market dynamics. In the second part of the paper this calculus is used in a…
Current post-trade clearing systems rely almost exclusively on cash or cash-like collateral, leaving vast reserves of short-term liquidity embedded in trade credit outside formal settlement infrastructures. A key barrier to integrating this liquidity is the near-universal dependence of clearing services on novation, which imposes institutional overhead that restricts accessibility and limits the range of obligations …
Deep reinforcement learning (DRL) has been envisioned to have a competitive edge in quantitative finance. However, there is a steep development curve for quantitative traders to obtain an agent that automatically positions to win in the market, namely \textit{to decide where to trade, at what price} and \textit{what quantity}, due to the error-prone programming and arduous debugging. In this paper, we present the fir…
Liquidation Cascade (Crypto).
Chapter 7 Liquidation (Fixed Income).
Crypto Liquidation Cascade — Forced closes amplifying moves when leverage clusters breach.
Liquidation Map BTC — Digital-asset market structure, leverage, or on-chain concept.
Liquidation Map ETH — Digital-asset market structure, leverage, or on-chain concept.
Liquidation Map SOL — Digital-asset market structure, leverage, or on-chain concept.
Liquidation Map BNB — Digital-asset market structure, leverage, or on-chain concept.
Liquidation Map XRP — Digital-asset market structure, leverage, or on-chain concept.
Liquidation Map perp — Digital-asset market structure, leverage, or on-chain concept.
Liquidation Map spot — Digital-asset market structure, leverage, or on-chain concept.
Liquidation Map options — Digital-asset market structure, leverage, or on-chain concept.
Liquidation Map DeFi — Digital-asset market structure, leverage, or on-chain concept.
Liquidation Map CEX — Digital-asset market structure, leverage, or on-chain concept.
Liquidation Map DEX — Digital-asset market structure, leverage, or on-chain concept.
Liquidation Map risk-on Regime (Crypto).
Liquidation Map risk-off Regime (Crypto).
Liquidation Map tightening Regime (Crypto).
Liquidation Map easing Regime (Crypto).
Liquidation Map stagflation Regime (Crypto).
Liquidation Map reflation Regime (Crypto).
Liquidation Map disinflation Regime (Crypto).
Liquidation Map liquidity-crisis Regime (Crypto).
Liquidation Map carry Regime (Crypto).
Liquidation Map recession Regime (Crypto).
Chapter 7 Liquidation (Fixed Income).
Crypto Liquidation Cascade — Forced closes amplifying moves when leverage clusters breach.
Liquidation Cascade (Crypto).
Liquidation Map BNB — Digital-asset market structure, leverage, or on-chain concept.
Liquidation Map BTC — Digital-asset market structure, leverage, or on-chain concept.
Liquidation Map carry Regime (Crypto).
Liquidation Map CEX — Digital-asset market structure, leverage, or on-chain concept.
Liquidation Map DeFi — Digital-asset market structure, leverage, or on-chain concept.
Liquidation Map DEX — Digital-asset market structure, leverage, or on-chain concept.
Liquidation Map disinflation Regime (Crypto).
Liquidation Map easing Regime (Crypto).
Liquidation Map ETH — Digital-asset market structure, leverage, or on-chain concept.
Liquidation Map liquidity-crisis Regime (Crypto).
Liquidation Map options — Digital-asset market structure, leverage, or on-chain concept.
Liquidation Map perp — Digital-asset market structure, leverage, or on-chain concept.
Liquidation Map recession Regime (Crypto).
Liquidation Map reflation Regime (Crypto).
Liquidation Map risk-off Regime (Crypto).
Liquidation Map risk-on Regime (Crypto).
Liquidation Map SOL — Digital-asset market structure, leverage, or on-chain concept.
Liquidation Map spot — Digital-asset market structure, leverage, or on-chain concept.
Liquidation Map stagflation Regime (Crypto).
Liquidation Map tightening Regime (Crypto).
Liquidation Map XRP — Digital-asset market structure, leverage, or on-chain concept.