Distressed Sales and Financial Arbitrageurs: Front-Running in Illiquid Markets

2007 ◽  
Author(s):  
Dan Liang
Keyword(s):  
Illiquid Markets ◽  
Front Running

The Russian ruble crisis of December 2014

2016 ◽  
pp. 66-86
Author(s):  
A. Obizhaeva
Keyword(s):  
Microstructure Analysis ◽  
Future Market ◽  
Effective Response ◽  
Large Order ◽  
Short Period ◽  
The Face ◽  
Front Running ◽  
Futures And Options

The paper presents a microstructure analysis of the crash of the Russian ruble in mid-December 2014. The author shows that the market break probably happened due to the execution of a large order that converted Russian rubles into U.S. dollars over a short period of a few days. Expirations of futures and options as well as possible front-running could have exacerbated the collapse of the Russian currency. The paper discusses measures taken by the Moscow Exchange and Bank of Russia during the episode and makes several recommendations to prevent a repetition of the similar events and provide an effective response in the face of future market breaks.

Hedging Options in Illiquid Markets

2007 ◽  
Author(s):  
Burkart Mönch ◽  
Norman Seeger
Keyword(s):  
Illiquid Markets

Pricing Interest Rate Swaps in Malaysia

2004 ◽  
Vol 07 (04) ◽  
pp. 493-507 ◽  
Author(s):  
Dick Davies ◽  
David Hillier ◽  
Andrew Marshall ◽  
King Fui Cheah
Keyword(s):  
Interest Rate ◽  
Yield Curve ◽  
Capital Controls ◽  
Sample Period ◽  
Kuala Lumpur ◽  
Empirical Results ◽  
Illiquid Markets ◽  
Interest Rate Swaps ◽  
Derivative Markets

This paper compares the theoretical price of interest rate swaps implied from the yield curve with the actual Kuala Lumpur Interbank Offer Rates used for swap resets in the Malaysian swap market for both semi-annual and annual interest rate swaps between 1996 and 2002. As far as we are aware no previous paper has considered pricing swaps in a less established derivative markets. Our empirical results indicate significant and persistent differences between the theoretical implied price and the actual reset price for both swaps over the sample period. This finding has implications for traders and banks in pricing swaps in Malaysia and more generally for pricing swaps in less established or illiquid markets or where capital controls have been introduced.

scholarly journals OPTIMAL INVESTMENT ON FINITE HORIZON WITH RANDOM DISCRETE ORDER FLOW IN ILLIQUID MARKETS

2011 ◽  
Vol 14 (01) ◽  
pp. 17-40 ◽  
Author(s):  
PAUL GASSIAT ◽  
HUYÊN PHAM ◽  
MIHAI SÎRBU
Keyword(s):  
Dynamic Programming ◽  
Optimal Investment ◽  
Market Model ◽  
Programming Approach ◽  
Order Flow ◽  
Short Sale Constraints ◽  
Dynamic Programming Approach ◽  
Short Sale ◽  
Illiquid Markets ◽  
Investor Trading

We study the problem of optimal portfolio selection in an illiquid market with discrete order flow. In this market, bids and offers are not available at any time but trading occurs more frequently near a terminal horizon. The investor can observe and trade the risky asset only at exogenous random times corresponding to the order flow given by an inhomogenous Poisson process. By using a direct dynamic programming approach, we first derive and solve the fixed point dynamic programming equation satisfied by the value function, and then perform a verification argument which provides the existence and characterization of optimal trading strategies. We prove the convergence of the optimal performance, when the deterministic intensity of the order flow approaches infinity at any time, to the optimal expected utility for an investor trading continuously in a perfectly liquid market model with no-short sale constraints.

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