Optimal Liquidity Provision on Decentralized Exchanges(Financial Mathematics/Stochastic Control)

Details

• Time: 10:00-11:00 am (Beijing Time)
• Date: Monday,May 20, 2024
• Venue: MB441
• Speaker：Dr. Chen Yang, Chinese University of Hong Kong
  
• Host:Dr. Ran Wei

Abstract

Automated Market Makers (AMMs) are a popular type of decentralized exchanges, in which users trade tokens with each other directly and automatically through a liquidity pool and a fixed pricing function. Liquidity providers (LPs) can contribute to the liquidity pool by supplying tokens to the pool and earn transaction fees in return from users who trade through the pool. We propose a model of optimal liquidity provision in which a risk-averse LP decides the number of tokens to supply to the pool and trade in an open market, and the consumption amount in multiple periods. We derive the LP’s optimal strategy by dynamic programming and study the impact of the transaction fees and pricing function on the number of tokens supplied by the LP. This is a joint work with Xuedong He and Yutian Zhou.

Speaker

Chen YANG received a B.Sc. degree in Mathematics and Applied Mathematics from Zhejiang University in 2008, and his Ph.D. degree in Financial Mathematics from National University of Singapore in 2017.  Prior to joining the Chinese University of Hong Kong, he was a postdoctoral researcher at ETH Zurich from 2017 to 2019. His research interests include portfolio selection and asset pricing with market frictions, financial technology, and stochastic control. He has published in leading journals such as The Review of Financial Studies, Management Science, and Mathematics of Operations Research.