Strategic Learning and Trading in Broker-Mediated Markets
We study strategic interactions in a broker-mediated market. A broker provides liquidity to an informed trader and to noise traders while managing inventory in the lit market. The broker and the informed trader maximise their trading performance while filtering each other's private information; the trader estimates the broker's trading activity in the lit market while the broker estimates the informed trader's private signal. Brokers hold a strategic advantage over traders who rely solely on prices to filter information. We find that information leakage in the client's trading flow yields an economic value to the broker that is comparable to transaction costs; she speculates profitably and mitigates risk effectively, which, in turn, adversely impacts the informed trader's performance. In contrast, low signal-to-noise sources, such as prices, result in the broker's trading performance being indistinguishable from that of a naive strategy that internalises noise flow, externalises informed flow, and offloads inventory at a constant rate.
Code (1)
Similar Papers 제목 키워드 기반
Nash Equilibrium between Brokers and Traders
We study the perfect information Nash equilibrium between a broker and her clients -- an informed trader and an uniformed trader. In our model, the broker trades in the lit exchange where trades have instantaneous and tr…
Profit and loss manipulations by online trading brokers
Online trading has attracted millions of people around the world. In March 2021, it was reported there were 18 million accounts from just one broker. Historically, manipulation in financial markets is considered to be fr…
Dynamic Reinsurance Treaty Bidding via Multi-Agent Reinforcement Learning
This paper develops a novel multi-agent reinforcement learning (MARL) framework for reinsurance treaty bidding, addressing long-standing inefficiencies in traditional broker-mediated placement processes. We pose the core…
Multi-agent Reinforcement Learningreinforcement-learningReinforcement LearningForeign Exchange Markets with Last Look
We examine the Foreign Exchange (FX) spot price spreads with and without Last Look on the transaction. We assume that brokers are risk-neutral and they quote spreads so that losses to latency arbitrageurs (LAs) are recov…
Optimal brokerage contracts in Almgren-Chriss model with multiple clients
This paper constructs optimal brokerage contracts for multiple (heterogeneous) clients trading a single asset whose price follows the Almgren-Chriss model. The distinctive features of this work are as follows: (i) the re…