An Optimization-Based Framework for Automated Market-Making

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An Optimization-Based Framework for Automated Market-Making

Show simple item record Chen, Yiling Abernethy, Jacob Vaughan, Jennifer Wortman 2011-09-26T15:12:59Z 2011
dc.identifier.citation Abernethy, Jacob, Yiling Chen, and Jennifer Wortman Vaughan. 2011. An optimization-based framework for automated market-making. In Proceedings of the EC '11 12th ACM Conference on Electronic Commerce: June 5-9, 2011, San Jose, CA, 297-306. New York: Association for Computing Machinery. en_US
dc.identifier.isbn 978-1-4503-0261-6 en_US
dc.description.abstract We propose a general framework for the design of securities markets over combinatorial or infinite state or outcome spaces. The framework enables the design of computationally efficient markets tailored to an arbitrary, yet relatively small, space of securities with bounded payoff. We prove that any market satisfying a set of intuitive conditions must price securities via a convex cost function, which is constructed via conjugate duality. Rather than deal with an exponentially large or infinite outcome space directly, our framework only requires optimization over a convex hull. By reducing the problem of automated market making to convex optimization, where many efficient algorithms exist, we arrive at a range of new polynomial-time pricing mechanisms for various problems. We demonstrate the advantages of this framework with the design of some particular markets. We also show that by relaxing the convex hull we can gain computational tractability without compromising the market institution’s bounded budget. en_US
dc.description.sponsorship Engineering and Applied Sciences en_US
dc.language.iso en_US en_US
dc.publisher Association for Computing Machinery en_US
dc.relation.isversionof doi:10.1145/1993574.1993621 en_US
dash.license OAP
dc.subject algorithms en_US
dc.subject economics en_US
dc.subject theory en_US
dc.title An Optimization-Based Framework for Automated Market-Making en_US
dc.type Conference Paper en_US
dc.description.version Accepted Manuscript en_US Chen, Yiling 2011-09-26T15:12:59Z

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