Date of Original Version

8-2011

Type

Conference Proceeding

Rights Management

The final publication is available at Springer via http://dx.doi.org/10.1007/978-3-642-30913-7_5

Abstract or Description

Automated market makers are algorithmic agents that provide liquidity in electronic markets. We construct two new automated market makers that each solve an open problem of theoretical and practical interest. First, we formulate a market maker that has bounded loss over separable measure spaces. This opens up an exciting new set of domains for prediction markets, including markets on locations and markets where events correspond to the natural numbers. Second, by shifting profits into liquidity, we create a market maker that has bounded loss in addition to a bid/ask spread that gets arbitrarily small with trading volume. This market maker matches important attributes of real human market makers and suggests a path forward for integrating automated market making agents into markets with real money.

DOI

10.1007/978-3-642-30913-7_5

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Published In

Lecture Notes in Computer Science, 80, 19-30.