{"id":166536,"date":"2014-01-01T00:00:00","date_gmt":"2014-01-01T00:00:00","guid":{"rendered":"https:\/\/www.microsoft.com\/en-us\/research\/msr-research-item\/a-general-volume-parameterized-market-making-framework\/"},"modified":"2019-06-21T05:55:06","modified_gmt":"2019-06-21T12:55:06","slug":"a-general-volume-parameterized-market-making-framework","status":"publish","type":"msr-research-item","link":"https:\/\/www.microsoft.com\/en-us\/research\/publication\/a-general-volume-parameterized-market-making-framework\/","title":{"rendered":"A General Volume-Parameterized Market Making Framework"},"content":{"rendered":"<div class=\"asset-content\">\n<p>We introduce a framework for automated market making for prediction markets, the volume parameterized market (VPM), in which securities are priced based on the market maker&#8217;s current liabilities as well as the total volume of trade in the market. We provide a set of mathematical tools that can be used to analyze markets in this framework, and show that many existing market makers (including cost-function based markets, profit-charging markets, and buy-only markets) all fall into this framework as special cases. Using the framework, we design a new market maker, the perspective market, that satisfies four desirable properties (worst-case loss, no arbitrage, increasing liquidity, and shrinking spread) in the complex market setting, but fails to satisfy information incorporation. However, we show that the sacrifice of information incorporation is unavoidable: we prove an impossibility result showing that any market maker that prices securities based only on the trade history cannot satisfy all five properties simultaneously. Instead, we show that perspective markets may satisfy a weaker notion that we call center-price information incorporation.<\/p>\n<\/div>\n<p><!-- .asset-content --><\/p>\n","protected":false},"excerpt":{"rendered":"<p>We introduce a framework for automated market making for prediction markets, the volume parameterized market (VPM), in which securities are priced based on the market maker&#8217;s current liabilities as well as the total volume of trade in the market. We provide a set of mathematical tools that can be used to analyze markets in this [&hellip;]<\/p>\n","protected":false},"featured_media":0,"template":"","meta":{"msr-url-field":"","msr-podcast-episode":"","msrModifiedDate":"","msrModifiedDateEnabled":false,"ep_exclude_from_search":false,"_classifai_error":"","msr-author-ordering":null,"msr_publishername":"","msr_publisher_other":"","msr_booktitle":"","msr_chapter":"","msr_edition":"","msr_editors":"","msr_how_published":"","msr_isbn":"","msr_issue":"","msr_journal":"","msr_number":"","msr_organization":"","msr_pages_string":"","msr_page_range_start":"","msr_page_range_end":"","msr_series":"","msr_volume":"","msr_copyright":"","msr_conference_name":"ACM Conference on Electronic Commerce","msr_doi":"","msr_arxiv_id":"","msr_s2_paper_id":"","msr_mag_id":"","msr_pubmed_id":"","msr_other_authors":"Jacob Abernethy, Xiaolong Li, Jennifer Wortman Vaughan","msr_other_contributors":"","msr_speaker":"","msr_award":"","msr_affiliation":"","msr_institution":"","msr_host":"","msr_version":"","msr_duration":"","msr_original_fields_of_study":"","msr_release_tracker_id":"","msr_s2_match_type":"","msr_citation_count_updated":"","msr_published_date":"2014-1-1","msr_highlight_text":"","msr_notes":"","msr_longbiography":"","msr_publicationurl":"","msr_external_url":"","msr_secondary_video_url":"","msr_conference_url":"","msr_journal_url":"","msr_s2_pdf_url":"","msr_year":0,"msr_citation_count":0,"msr_influential_citations":0,"msr_reference_count":0,"msr_s2_match_confidence":0,"msr_microsoftintellectualproperty":true,"msr_s2_open_access":false,"msr_s2_author_ids":[],"msr_pub_ids":[],"msr_hide_image_in_river":0,"footnotes":""},"msr-research-highlight":[],"research-area":[13561,13556,13548],"msr-publication-type":[193716],"msr-publisher":[],"msr-focus-area":[],"msr-locale":[268875],"msr-post-option":[],"msr-field-of-study":[],"msr-conference":[],"msr-journal":[],"msr-impact-theme":[],"msr-pillar":[],"class_list":["post-166536","msr-research-item","type-msr-research-item","status-publish","hentry","msr-research-area-algorithms","msr-research-area-artificial-intelligence","msr-research-area-economics","msr-locale-en_us"],"msr_publishername":"","msr_edition":"","msr_affiliation":"","msr_published_date":"2014-1-1","msr_host":"","msr_duration":"","msr_version":"","msr_speaker":"","msr_other_contributors":"","msr_booktitle":"","msr_pages_string":"","msr_chapter":"","msr_isbn":"","msr_journal":"","msr_volume":"","msr_number":"","msr_editors":"","msr_series":"","msr_issue":"","msr_organization":"","msr_how_published":"","msr_notes":"","msr_highlight_text":"","msr_release_tracker_id":"","msr_original_fields_of_study":"","msr_download_urls":"","msr_external_url":"","msr_secondary_video_url":"","msr_longbiography":"","msr_microsoftintellectualproperty":1,"msr_main_download":"205113","msr_publicationurl":"","msr_doi":"","msr_publication_uploader":[{"type":"file","viewUrl":"https:\/\/www.microsoft.com\/en-us\/research\/wp-content\/uploads\/2016\/02\/vpm.pdf","id":"205113","title":"vpm.pdf","label_id":"243109","label":0}],"msr_related_uploader":"","msr_citation_count":0,"msr_citation_count_updated":"","msr_s2_paper_id":"","msr_influential_citations":0,"msr_reference_count":0,"msr_arxiv_id":"","msr_s2_author_ids":[],"msr_s2_open_access":false,"msr_s2_pdf_url":null,"msr_attachments":[{"id":205113,"url":"https:\/\/www.microsoft.com\/en-us\/research\/wp-content\/uploads\/2016\/02\/vpm.pdf"}],"msr-author-ordering":[{"type":"text","value":"Jacob Abernethy","user_id":0,"rest_url":false},{"type":"user_nicename","value":"Rafael Frongillo","user_id":33323,"rest_url":"https:\/\/www.microsoft.com\/en-us\/research\/wp-json\/microsoft-research\/v1\/researchers?person=Rafael Frongillo"},{"type":"text","value":"Xiaolong Li","user_id":0,"rest_url":false},{"type":"user_nicename","value":"Jenn Wortman Vaughan","user_id":32235,"rest_url":"https:\/\/www.microsoft.com\/en-us\/research\/wp-json\/microsoft-research\/v1\/researchers?person=Jenn Wortman Vaughan"}],"msr_impact_theme":[],"msr_research_lab":[199571],"msr_event":[],"msr_group":[],"msr_project":[171055],"publication":[],"video":[],"msr-tool":[],"msr_publication_type":"inproceedings","related_content":{"projects":[{"ID":171055,"post_title":"Prediction Engines","post_name":"prediction-engines","post_type":"msr-project","post_date":"2012-11-12 11:49:03","post_modified":"2021-11-11 17:27:16","post_status":"publish","permalink":"https:\/\/www.microsoft.com\/en-us\/research\/project\/prediction-engines\/","post_excerpt":"Research around information aggregation and prediction, including polls, probability elicitation, and prediction markets.These methods, broadly defined as wisdom of the crowds, are utilized for a range of outcomes: elections, marketing, internal corporate, military intelligence, etc. We demonstrate some serious advances. (1) Combinatorial Prediction Markets: frontend, backened, and unique questions. (2) Experimental Prediction Markets and Polling. 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