Imperial College London
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ProfessorCharles-AlbertLehalle

Faculty of Natural Sciences, Department of Mathematics

Visiting Professor
 
 
 
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Contact

 

c.lehalle Website

 
 
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Location

 

Weeks BuildingSouth Kensington Campus

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Summary

 

Publications

Citation

BibTex format

@unpublished{Lehalle:2021,
author = {Lehalle, C-A and Neuman, E and Shlomov, S},
publisher = {arXiv},
title = {Phase transitions in Kyle's model with market maker profit incentives},
url = {http://arxiv.org/abs/2103.04481v1},
year = {2021}
}
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RIS format (EndNote, RefMan)

TY  - UNPB
AB  - We consider a stochastic game between three types of players: an insidetrader, noise traders and a market maker. In a similar fashion to Kyle's model,we assume that the insider first chooses the size of her market-order and thenthe market maker determines the price by observing the total order-flowresulting from the insider and the noise traders transactions. In addition tothe classical framework, a revenue term is added to the market maker'sperformance function, which is proportional to the order flow and to the sizeof the bid-ask spread. We derive the maximizer for the insider's revenuefunction and prove sufficient conditions for an equilibrium in the game. Then,we use neural networks methods to verify that this equilibrium holds. We showthat the equilibrium state in this model experience interesting phasetransitions, as the weight of the revenue term in the market maker'sperformance function changes. Specifically, the asset price in equilibriumexperience three different phases: a linear pricing rule without a spread, apricing rule that includes a linear mid-price and a bid-ask spread, and ametastable state with a zero mid-price and a large spread.
AU  - Lehalle,C-A
AU  - Neuman,E
AU  - Shlomov,S
PB  - arXiv
PY  - 2021///
TI  - Phase transitions in Kyle's model with market maker profit incentives
UR  - http://arxiv.org/abs/2103.04481v1
UR  - http://hdl.handle.net/10044/1/87470
ER  -
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