TY - GEN
T1 - A cloaking mechanism to mitigate market manipulation
AU - Wang, Xintong
AU - Vorobeychik, Yevgeniy
AU - Wellman, Michael P.
N1 - Publisher Copyright: © 2018 International Joint Conferences on Artificial Intelligence. All right reserved.
PY - 2018
Y1 - 2018
N2 - We propose a cloaking mechanism to deter spoofing, a form of manipulation in financial markets. The mechanism works by symmetrically concealing a specified number of price levels from the inside of the order book. To study the effectiveness of cloaking, we simulate markets populated with background traders and an exploiter, who strategically spoofs to profit. The traders follow two representative bidding strategies: the non-spoofable zero intelligence and the manipulable heuristic belief learning. Through empirical game-theoretic analysis across parametrically different environments, we evaluate surplus accrued by traders, and characterize the conditions under which cloaking mitigates manipulation and benefits market welfare. We further design sophisticated spoofing strategies that probe to reveal cloaked information, and find that the effort and risk exceed the gains.
AB - We propose a cloaking mechanism to deter spoofing, a form of manipulation in financial markets. The mechanism works by symmetrically concealing a specified number of price levels from the inside of the order book. To study the effectiveness of cloaking, we simulate markets populated with background traders and an exploiter, who strategically spoofs to profit. The traders follow two representative bidding strategies: the non-spoofable zero intelligence and the manipulable heuristic belief learning. Through empirical game-theoretic analysis across parametrically different environments, we evaluate surplus accrued by traders, and characterize the conditions under which cloaking mitigates manipulation and benefits market welfare. We further design sophisticated spoofing strategies that probe to reveal cloaked information, and find that the effort and risk exceed the gains.
UR - https://www.scopus.com/pages/publications/85055691213
UR - https://www.scopus.com/pages/publications/85055691213#tab=citedBy
U2 - 10.24963/ijcai.2018/75
DO - 10.24963/ijcai.2018/75
M3 - Conference contribution
T3 - IJCAI International Joint Conference on Artificial Intelligence
SP - 541
EP - 547
BT - Proceedings of the 27th International Joint Conference on Artificial Intelligence, IJCAI 2018
A2 - Lang, Jerome
PB - International Joint Conferences on Artificial Intelligence
T2 - 27th International Joint Conference on Artificial Intelligence, IJCAI 2018
Y2 - 13 July 2018 through 19 July 2018
ER -