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

Philippe Bergault, Louis Bertucci, David Bouba, Olivier Guéant and Julien Guilbert
Additional contact information
Philippe Bergault: Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres
Louis Bertucci: Institut Louis Bachelier
David Bouba: Swaap Labs
Julien Guilbert: Swaap Labs

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

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.

Keywords: AMM; DeFi; stochastic optimal control; Heston-Bates model; Stein-Stein model; Hawkes processes; Markov-modulated Poisson processes (search for similar items in EconPapers)
Date: 2024-05-15
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Working Paper: Price-Aware Automated Market Makers: Models Beyond Brownian Prices and Static Liquidity (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:hal-04577060

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