{"about":{"site":"https://codewithpapers.app","non_affiliation":"Code with Papers and Syntology are not affiliated with, endorsed by, or sponsored by Papers with Code, Meta, or the pwc-archive mirror.","licence":"CC BY-SA 4.0","licence_url":"https://creativecommons.org/licenses/by-sa/4.0/legalcode","attribution":"https://codewithpapers.app/attribution","modified":"archive material modified by Syntology; see the attribution page"},"url":"/paper/inefficiency-of-cfms-hedging-perspective-and","title":"Inefficiency of CFMs: hedging perspective and agent-based simulations","arxiv_id":"2302.04345","date":"2023-02-08","proceeding":null,"authors":["samuel cohen","Marc Sabaté Vidales","David Šiška","Łukasz Szpruch"],"abstract":"We investigate whether the fee income from trades on the CFM is sufficient for the liquidity providers to hedge away the exposure to market risk. We first analyse this problem through the lens of continuous-time financial mathematics and derive an upper bound for not-arbitrage fee income that would make CFM efficient and liquidity provision fair. We then evaluate our findings by performing multi-agent simulations by varying CFM fees, market volatility, and rate of arrival of liquidity takers. We observe that, on average, fee income generated from liquidity provision is insufficient to compensate for market risk.","url_abs":"https://arxiv.org/abs/2302.04345v1","url_pdf":"https://arxiv.org/pdf/2302.04345v1.pdf","source":{"archive":"pwc-archive (Hugging Face), CC BY-SA 4.0","snapshot":"2025-07-28","licence_url":"https://creativecommons.org/licenses/by-sa/4.0/legalcode","row_kind":"abstracts"},"code_links":[{"paper_slug":"inefficiency-of-cfms-hedging-perspective-and","repo_url":"https://github.com/simtopia/cfm-sim","is_official":1,"mentioned_in_paper":1,"mentioned_in_github":0,"framework":"none","reach":null}],"tasks":[],"methods":[],"datasets_introduced":[],"methods_introduced":[],"results":[],"syntology":{"syntology_url":null,"atlas_url":null,"mcp":null,"developers":"https://syntology.ai/developers"},"arxiv_metadata":null,"syntology_extracted_results":null}