A Deconstructed Constant Product Market

7 Pages Posted: 7 Jun 2021

Date Written: May 30, 2021

Abstract

We demonstrate how a liquidity position in a constant product market can be closely approximated with a future (delta), a quadratic swap (gamma), and a swap for fees.The pool value behaves like an option with a constant delta and gamma and zero vega.

Keywords: Automatic market makers, market microstructure

Suggested Citation

Clark, Joseph, A Deconstructed Constant Product Market (May 30, 2021). Available at SSRN: https://ssrn.com/abstract=3856446 or http://dx.doi.org/10.2139/ssrn.3856446

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