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

  • Abraham Othman
  • Tuomas Sandholm
Part of the Lecture Notes of the Institute for Computer Sciences, Social Informatics and Telecommunications Engineering book series (LNICST, volume 80)

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.

Keywords

Cost Function Event Space Electronic Commerce Market Maker Real Money 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© ICST Institute for Computer Science, Social Informatics and Telecommunications Engineering 2012

Authors and Affiliations

  • Abraham Othman
    • 1
  • Tuomas Sandholm
    • 1
  1. 1.Computer Science DepartmentCarnegie Mellon UniversityUSA

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