Equilibrium in closed constant-function market maker economies

Muqiao Huang, Ruodu Wang and Yiyun Wang

Papers from arXiv.org

Abstract: We study equilibria in a closed, fee-free constant-function market maker (CFMM) economy with two assets and two agents. An interior state is a unilateral no-trade equilibrium exactly when the CFMM marginal price equals both agents' marginal rates of substitution. For an interior initial state, individually rational unilateral equilibria are Pareto optimal relative to the fixed CFMM invariant. A weak representative agent is obtained at each fixed equilibrium by weighted sup-convolution, whereas, under some regularity assumptions, a state-independent strong representative agent exists exactly when agents share the same homothetic preference. Every interior feasible state is reachable through finitely many valid trades, but an individually rational interior target need not be improvement reachable. Alternating utility-maximizing trades converge to a Pareto optimal unilateral equilibrium.

Date: 2026-08, Revised 2026-10
New Economics Papers: this item is included in nep-mst and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://arxiv.org/pdf/2608.23915 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2608.23915

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().