Date/Time : 22 Aug 2025 15:00
Venue : S17 #04-06 (Seminar Room 1)
Speaker : Marcel Nutz, Columbia University

Passive liquidity providers (LPs) in automated market makers (AMMs) face losses due to adverse selection, which static trading fees often fail to offset in practice. We study the key determinants of LP profitability in a dynamic reduced-form model where an AMM operates in parallel with a centralized exchange (CEX), traders route their orders optimally to the venue offering the better price, and arbitrageurs exploit price discrepancies. Using large-scale simulations and real market data, we analyze how LP profits vary with market conditions such as volatility and trading volume, and characterize the optimal AMM fee as a function of these conditions. The mechanisms driving these relationships are highlighted through extensive comparative statics, and the model’s relevance is confirmed through calibration to market data. We find that under normal market conditions, the optimal AMM fee is competitive with the trading cost on the CEX and remarkably stable, whereas in periods of very high volatility, a high fee protects passive LPs from severe losses. These findings suggest a threshold-type dynamic fee schedule to improve LP outcomes. (Joint work with Steven Campbell, Philippe Bergault, Jason Milionis.)

Add to calendar :

Date/Time : 22 Nov 2023 11:00
Venue : S17 #04-05 (SR2)
Speaker : Eva Lütkebohmert, University of Freiburg

Sovereign loan portfolios of Multilateral Development Banks typically consist of only a small number of borrowers and hence are heavily exposed to single name concentration risk. Based on realistic MDB portfolios constructed from publicly available data, this paper quantifies the magnitude of the exposure to name concentration risk using exact Monte Carlo simulations. In comparing the exact adjustment for name concentration risk to its analytic approximation as currently applied by major rating agencies, we further investigate whether current capital adequacy frameworks for MDBs are overly conservative.

(This is joint work with Julian Sester and Hongyi Shen)

Add to calendar :