Auctions, Market Mechanisms, and Their Applications. Second International ICST Conference, AMMA 2011, NewYork, NY, USA, August 22-23, 2011, Revised Selected Papers

Research Article

Automated Market Makers That Enable New Settings: Extending Constant-Utility Cost Functions

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  • @INPROCEEDINGS{10.1007/978-3-642-30913-7_5,
        author={Abraham Othman and Tuomas Sandholm},
        title={Automated Market Makers That Enable New Settings: Extending Constant-Utility Cost Functions},
        proceedings={Auctions, Market Mechanisms, and Their Applications. Second International ICST Conference, AMMA 2011, NewYork, NY, USA, August 22-23, 2011, Revised Selected Papers},
        proceedings_a={AMMA},
        year={2012},
        month={10},
        keywords={},
        doi={10.1007/978-3-642-30913-7_5}
    }
    
  • Abraham Othman
    Tuomas Sandholm
    Year: 2012
    Automated Market Makers That Enable New Settings: Extending Constant-Utility Cost Functions
    AMMA
    Springer
    DOI: 10.1007/978-3-642-30913-7_5
Abraham Othman1,*, Tuomas Sandholm1,*
  • 1: Carnegie Mellon University
*Contact email: aothman@cs.cmu.edu, sandholm@cs.cmu.edu

Abstract

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.