IEOR - Designing a More Efficient World

Heterogeneous Assets Market Design

Publication Date: December 8, 2019

Y. An and Z. Zheng, “Heterogeneous Assets Market Design,” 2019 Winter Simulation Conference (WSC), National Harbor, MD, USA, 2019, pp. 974-983, doi: 10.1109/WSC40007.2019.9004708.


Abstract: In this paper, we study market design issues for heterogeneous assets. We consider a setting with multiple assets and multiple traders. The new modeling feature is that a social planner can decide to shut down some asset markets so that no traders can trade these assets. We show that closing down some asset markets can increase the total volume of trades by all traders. This is because a smaller number of assets available to trade can reduce coordination failures between different traders, and therefore improves the overall matching efficiency. Using numerical simulation, we study the optimal numbers of markets to open under different scenarios. This has practical implications towards the optimal design of session-based trading protocols in the corporate and municipal bond markets. This problem naturally leads to the use of simulation to select the best system from all possible market design choices. We implement simulation experiments to demonstrate our finding and analyze sensitivities to several market-relevant parameters.