Solvable Stochastic Dealer Models for Financial Markets

Exact solution to two-body financial dealer model: revisited from the viewpoint of kinetic theory

The two-body stochastic dealer model is revisited to provide an exact solution to the average order-book profile using the kinetic approach. The dealer model is a microscopic financial model where individual traders make decisions on limit-order prices stochastically and then reach agreements on transactions. In the literature, this model was solved for several cases: an exact solution for two-body traders $N=2$ and a mean-field solution for many traders $N\gg 1$. Remarkably, while kinetic theory plays a significant role in the mean-field analysis for $N\gg 1$, its role is still elusive for th…

The behavior of dealers and clients on the European corporate bond market: the case of Multi-Dealer-to-Client platforms

For the last two decades, most financial markets have undergone an evolution toward electronification. The market for corporate bonds is one of the last major financial markets to follow this unavoidable path. Traditionally quote-driven i.e., dealer-driven) rather than order-driven, the market for corporate bonds is still mainly dominated by voice trading, but a lot of electronic platforms have emerged. These electronic platforms make it possible for buy-side agents to simultaneously request several dealers for quotes, or even directly trade with other buy-siders. The research presented in thi…

债券多交易商对客户平台中的因果干预

Causal Interventions in Bond Multi-Dealer-to-Client Platforms

本文提出基于概率图模型和因果推断的框架分析债券MD2C平台的报价请求过程，生成模型在匹配LightGBM预测精度的同时满足价差单调性等业务约束。

On possible origins of trends in financial market price changes

We investigate possible origins of trends using a deterministic threshold model, where we refer to long-term variabilities of price changes (price movements) in financial markets as trends. From the investigation we find two phenomena. One is that the trend of monotonic increase and decrease can be generated by dealers' minuscule change in mood, which corresponds to the possible fundamentals. The other is that the emergence of trends is all but inevitable in the realistic situation because of the fact that dealers cannot always obtain accurate information about deals, even if there is no influ…

Stability and analytic expansions of local solutions of systems of quadratic BSDEs with applications to a price impact model

We obtain stability estimates and derive analytic expansions for local solutions of multi-dimensional quadratic BSDEs. We apply these results to a financial model where the prices of risky assets are quoted by a representative dealer in such a way that it is optimal to meet an exogenous demand. We show that the prices are stable under the demand process and derive their analytic expansions for small risk aversion coefficients of the dealer.

Cooperation between Independent Market Makers

With the digitalization of the financial market, dealers are increasingly handling market-making activities by algorithms. Recent antitrust literature raises concerns on collusion caused by artificial intelligence. This paper studies the possibility of cooperation between market makers via independent Q-learning. Market making with inventory risk is formulated as a repeated general-sum game. Under a stag-hunt type payoff, we find that market makers can learn cooperative strategies without communication. In general, high spreads can have the largest probability even when the lowest spread is th…