|
on Contract Theory and Applications |
| By: | Omar Euch (CMAP - Centre de Mathématiques Appliquées - Ecole Polytechnique - X - École polytechnique - CNRS - Centre National de la Recherche Scientifique); Thibaut Mastrolia (CMAP - Centre de Mathématiques Appliquées - Ecole Polytechnique - X - École polytechnique - CNRS - Centre National de la Recherche Scientifique); Mathieu Rosenbaum (CMAP - Centre de Mathématiques Appliquées - Ecole Polytechnique - X - École polytechnique - CNRS - Centre National de la Recherche Scientifique); Nizar Touzi (CMAP - Centre de Mathématiques Appliquées - Ecole Polytechnique - X - École polytechnique - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | We address the mechanism design problem of an exchange setting suitable make-take fees to attract liquidity on its platform. Using a principal-agent approach, we provide the optimal compensation scheme of a market maker in quasi-explicit form. This contract depends essentially on the market maker inventory trajectory and on the volatility of the asset. We also provide the optimal quotes that should be displayed by the market maker. The simplicity of our formulas allows us to analyze in details the effects of optimal contracting with an exchange, compared to a situation without contract. We show in particular that it improves liquidity and reduces trading costs for investors. We extend our study to an oligopoly of symmetric exchanges and we study the impact of such common agency policy on the system. |
| Keywords: | financial regulation,market making,Make-take fees,stochastic control,principal-agent problem,high-frequency trading |
| Date: | 2019–11–25 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02379592&r=all |
| By: | Normann Rion (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | In this paper, I build a simple Mortensen-Pissarides model embedding a dual labor market. I derive conditions for the existence of an equilibrium with coexisting strongly protected open-ended contracts and exogeneously short fixed-term contracts. I also study dynamics after a reform on employment protection legislation. Temporary contracts play the role of fillers while permanent contracts are used to lock up high-productivity matches. High firing costs favor the emergence of a dual equilibrium. Employment protection legislation encourages the resort to temporary employment in job creation. This scheme is intertwined with a general-equilibrium e_ect: permanent contracts represent the bulk of employed workers and a more stringent employment protection reduces aggregate job destruction. This pushes down unemployment and in turn reduces job creation ows through temporary contracts. The model is calibrated to match the French labor market. Policy experiments demonstrate that there is no joint gain in employment and social welfare through reforms on firing costs around the baseline economy. The optimal policy consists in implementing a unique open-ended contract with a strong cut in firing costs. Increases in firing costs within a dual labor market lead to a sluggish adjustment, while large cuts in firing costs lead to a quick one. The adjustment time of the labor market is highly non-monotonous between these two extremes. Policy-related uncertainty significantly strengthens fixed-term employment on behalf of open-ended employment. Considering extensions, I draw conclusions on the inability of a large class of random-matching models to mimic the distribution of temporary contracts' duration while maintaining possible the expiring temporary contracts' conversion into permanent contracts. |
| Keywords: | Fixed-term Contracts,Unemployment,Employment Protection,Policy,Dynamics |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-02331887&r=all |
| By: | Bastien Baldacci; Iuliia Manziuk; Thibaut Mastrolia; Mathieu Rosenbaum |
| Abstract: | We consider the issue of a market maker acting at the same time in the lit and dark pools of an exchange. The exchange wishes to establish a suitable make-take fees policy to attract transactions on its venues. We first solve the stochastic control problem of the market maker without the intervention of the exchange. Then we derive the equations defining the optimal contract to be set between the market maker and the exchange. This contract depends on the trading flows generated by the market maker's activity on the two venues. In both cases, we show existence and uniqueness, in the viscosity sense, of the solutions of the Hamilton-Jacobi-Bellman equations associated to the market maker and exchange's problems. We finally design deep reinforcement learning algorithms enabling us to approximate efficiently the optimal controls of the market maker and the optimal incentives to be provided by the exchange. |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1912.01129&r=all |