MCFAM Seminar Series: “Convexity costs in Automated Market Makers"

Please join us for our next seminar either in person or virtually! This seminar will feature economist and author Eric Falkenstein who will discuss convexity costs in automated market makers.

Note: This seminar was rescheduled from its original Feb. 3 date.

Refreshments will be served to those who attend in person in Vincent Hall.

Eric Falkenstein
Economist

Check the MCFAM Seminar webpage for details on upcoming lectures and speakers.

About the lecture

The most common blockchain trading contracts are based on a constant product rule, a*b=k, which subjects liquidity providers to negative convexity. This "gamma cost" for most contracts exceeds fee revenue. A solution is proposed to remove this cost by incenting liquidity providers to act as price-setting arbitrageurs while also preventing a subset of LPs from dominating the others.

About the speaker

Eric Falkenstein received his Ph.D. in economics from Northwestern in 1994 and wrote his dissertation on the low return to high volatility equities. He has written articles in several academic journals, including the Journal of Finance, and published two books—Finding Alpha and The Missing Risk Premium. He worked at KeyCorp as a risk manager and was head of economic capital allocations across the many bank business lines. At Moody's, he created their default model for private companies. He has been a long-short equity portfolio manager at various hedge funds and is currently working on Ethereum contracts and incubating a long-short equity strategy.