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Price-Aware Automated Market Makers: Models Beyond Brownian Prices and Static Liquidity

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  • Philippe Bergault
  • Louis Bertucci
  • David Bouba
  • Olivier Gu'eant
  • Julien Guilbert

Abstract

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 Poisson processes. Each model is analyzed with particular emphasis placed on the complexity of the numerical methods required to compute optimal quotes.

Suggested Citation

  • Philippe Bergault & Louis Bertucci & David Bouba & Olivier Gu'eant & Julien Guilbert, 2024. "Price-Aware Automated Market Makers: Models Beyond Brownian Prices and Static Liquidity," Papers 2405.03496, arXiv.org, revised May 2024.
    • Handle: RePEc:arx:papers:2405.03496
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