Liquidity Provision Research Articles

Dynamic bank capital regulation in the presence of shadow banks

Regulated banks expand relative to shadow banks in recessions and when credit spreads are high, while regulated banks shrink relative to shadow banks in expansions and when credit spreads are low. Motivated by these facts, I build a quantitative general equilibrium model with endogenous risk taking to study how competitive interactions between regulated banks and shadow banks affect optimal dynamic capital requirements. Limited liability and deposit insurance can lead regulated banks to provide socially inefficient risky loans when the returns on safer loans decline. Competition for scarcer funding can further lower the net returns on safe loans, making it more attractive for regulated banks to exploit the shield of limited liability with risky loans. Higher capital requirements can reduce inefficient risk at the cost of lower liquidity provision and some migration of credit from regulated banks to shadow banks. Accounting for the interactions of regulated and shadow banks can change the magnitude and direction of the optimal response of capital requirements to shocks that drive the business cycle. Moreover, Basel-III style rules that differentiate between the type of bank loans are much better at mimicking the Ramsey optimal capital requirements than standard rules that aggregate loans. The performance of such dynamic rules can be further improved once they are combined with a small static capital buffer.

The offline cash puzzle solved by a local blockchain

AbstractA major drawback in deploying central bank digital currencies (CBDC) is the offline puzzle, which requires that a CBDC must keep the liquidity provision given by cash, and, simultaneously, avoid double‐spending, cloning, and other issues. The puzzle is solved by minting the coins in serial numbers, which are stored on a local blockchain inside a smartphone or EMV card. The local blockchain is strengthened by a two‐stage approval architecture that mitigates attacks and enables non‐repudiation handling. The coins are protected by hardware keys embedded in the microchip and can be continuously mined by the wallet to enhance security. The coins can be either minted as hot coins, which can be retrieved in case of loss, or minted as cold coins, like physical cash.

Mutual Fund Fragility, Dealer Liquidity Provision, and the Pricing of Municipal Bonds

Against the backdrop of COVID-19, we study how the interactions of mutual funds and dealers introduce fragility to the municipal bond market and induce lasting market impacts. During the crisis, trading surges, whereas dealers’ liquidity provision plunges for mutual-fund-held bonds, leading to greater price depressions in these bonds. Importantly, the crisis reshapes the market’s perceptions of mutual fund fragility risks, with the aftermath-yield spreads widening significantly more for bonds with greater mutual fund exposures. Such postcrisis pricing effects reflect dealers’ continued reluctance to provide liquidity for mutual fund–held bonds, and they are stronger for bonds whose mutual fund holders are more susceptible to investor runs. This paper was accepted by Victoria Ivashina, finance. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2023.4912 .

The optimal investment problem with inflation and liquidity risk

Inflation, liquidity and labor supply flexibility are three macroeconomic factors that significantly affect financial assets pricing. All three factors need to be considered in creating investment policies to minimize the bias and achieve the optimal portfolio selection. This paper jointly considers the impact of these three factors on the optimal investment–consumption strategy. We start with measuring liquidity with a jump diffusion process and propose a new utility function. Then we derive the Hamilton–Jacobi–Bellman (HJB) equation for the value function. Next, the analytical solution of the optimal strategy are obtained under the cases of stochastic and non-stochastic wages, respectively. Finally, numerical examples are provided to show the impact of these three factors on portfolio selections.

Towards multi‐agent reinforcement learning‐driven over‐the‐counter market simulations

AbstractWe study a game between liquidity provider (LP) and liquidity taker agents interacting in an over‐the‐counter market, for which the typical example is foreign exchange. We show how a suitable design of parameterized families of reward functions coupled with shared policy learning constitutes an efficient solution to this problem. By playing against each other, our deep‐reinforcement‐learning‐driven agents learn emergent behaviors relative to a wide spectrum of objectives encompassing profit‐and‐loss, optimal execution, and market share. In particular, we find that LPs naturally learn to balance hedging and skewing, where skewing refers to setting their buy and sell prices asymmetrically as a function of their inventory. We further introduce a novel RL‐based calibration algorithm, which we found performed well at imposing constraints on the game equilibrium. On the theoretical side, we are able to show convergence rates for our multi‐agent policy gradient algorithm under a transitivity assumption, closely related to generalized ordinal potential games.

Critical heat flux and heat transfer behaviors on aged RPV outer wall surface in flow boiling under IVR conditions

Critical Heat Flux (CHF) plays an important role in the nuclear power plant safety strategy both during normal operation and under accident conditions. During normal operation, the outside wall is exposed to high-temperature environment. The surface is oxidized by air, which is so-called “aged surface”. To specify the characteristics of aged surface and the effect on CHF, the specimen aging experiments and flow boiling experiments under External Reactor Vessel Cooling (ERVC) were conducted. The results of specimen aging experiments show that surface characteristics get steady after 500 h aging and the oxide layer is the Fe-Fe2O3-Fe3O4 mixture. After aging, the surface gets rougher and has better hydrophily. In the flow boiling experiments, characteristics of heat transfer and CHF are studied. Heat transfer is enhanced by extended surface area and increased nucleation sites at lower angle. The influence of capillary suction is not obvious and the enhancement of CHF is limited. As the inclination angle increases, the departure of bubbles is more frequent and capillary suction is dominant to assist liquid supply into the liquid sublayer and delay the boiling process. At higher angle, CHF is more obviously enhanced but heat transfer gets worse. Overall, CHF of RPV outer wall is increased after surface aging, and it is beneficial to improving the safety margin of IVR mitigation measures.

Customer Choice Preference Analysis in Marketing Based on a Discrete Choice Model

In the construction and development of modern society, it is a powerful measure for enterprises to obtain more economic and social benefits to accurately grasp the basic needs and choice preferences of different consumer groups. This paper mainly discusses the characteristics of the customer object and the influencing factors of the choice preference in marketing. The MNL model is used to analyze the influence of a single statistical factor on consumers' choice preferences. Taking liquid dairy products as an example, subdividing consumer groups provides an effective basis for the construction and operation of the liquid dairy supply chain. While analyzing the basic information of the respondents, the correlation between different personal consumption characteristics and brand, price, taste, promotion, and outer packaging is analyzed through the correlation analysis method. The analysis results show that age and education level have a negative impact on brand or food quality and safety, while income has a significant positive impact on brand or food quality and safety. There are significant differences in the selection of liquid dairy products among consumer groups with different education levels.

The Conceptual Flaws of Decentralized Automated Market Making

Decentralized exchanges (DEXs) are an essential component of the nascent decentralized finance (DeFi) ecosystem. The most common DEXs are so-called automated market makers (AMMs): smart contracts that pool liquidity and process trades as atomic swaps of tokens. AMMs price transactions with a deterministic liquidity invariance rule that only uses the AMM’s token deposits as inputs and that has no precedent in traditional finance. Yet, in the context of transparent and open blockchain operations, any liquidity invariance pricing function allows so-called sandwich attacks (akin to front running) that increase the cost of trading and threaten the long-term viability of the DeFi ecosystem. Invariance pricing is also not regret free. Linear pricing rules have similar problems except for uniform pricing, which has regret-free prices and limits sandwich attack profits but which invites excessive order splitting. Comparing trading costs using a model of liquidity provision, constant product pricing is often cheaper except when the variance of the underlying asset is small or when the order is large. This paper was accepted by Will Cong, Special Section of Management Science: Blockchains and Crypto Economics. Funding: A. Park received financial support from the Global Risk Institute and the Social Sciences and Humanities Research Council of Canada [Grant 435-2017-0647]. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2021.02802 .

Preparation and Characterization of Nano-Silver-Loaded Antibacterial Membrane via Coaxial Electrospinning.

The coaxial electrospinning process has been widely used in the biomedical field, and its process parameters affect product quality seriously. In this paper, the influence of key process parameters of coaxial electrostatic spinning (solution concentration, electrospinning voltage, acceptance distance and liquid supply velocity) on the preparation of a membrane with Chitosan, Polyethylene oxide and nano-silver as the core layer and Polycaprolactone as the shell layer was studied. The optimal combination of key process parameters was obtained by using an orthogonal test, scanning electron microscope, transmission electron microscope and macro-characterization diagram. The results showed that the coaxial electrospun membrane had good mechanical properties (tensile strength is about 2.945 Mpa), hydrophilicity (the water contact angle is about 72.28°) and non-cytotoxicity, which was conducive to cell adhesion and proliferation. The coaxial electrospun membrane with nano-silver has an obvious inhibitory effect on Escherichia coli and Staphylococcus aureus. In summary, the coaxial electrospun membrane that we produced is expected to be used in clinical medicine, such as vascular stent membranes and bionic blood vessels.

Bank loans, trade credit, and liquidity shortages of small businesses during the global financial crisis

We investigate how small businesses responded to liquidity shortages during the financial crisis, focusing on heterogeneity between young and mature firms. With the sudden onset of the financial crisis, many small businesses faced declines in cash flows and liquidity shortages. Using over 4 million firm-year observations from Japan, we show that mature firms used bank loans more than young firms when facing liquidity shortages. This is consistent with previous studies indicating that banks offer liquidity provisions to firms with which they have close lending relationships. By contrast, trade payables did not largely increase for mature or young firms during the crisis. This suggests that mature firms relied on banks, not suppliers, for liquidity provision during the crisis. Furthermore, mature firms that experienced declines in cash flow during and after the crisis were likely to default and exit. This implies that credit allocation to mature firms is inefficient.

Foreign institutions, local investors and momentum trading

We study momentum and contrarian trading of foreign and local institutions as well as local individuals using a unique ownership dataset from the Australian stock market. We find that foreign institutions are momentum investors, whereas local investors are contrarians. However, momentum trading by foreign institutions is reversed during the Global Financial Crisis indicating that their trading behavior is time-varying. We further show that momentum trading by foreign institutions decreases following a period of low market return, high market illiquidity, high market volatility, or high volatility of the momentum portfolio. Also, momentum trading by foreign institutions predicts momentum profits. We show that the disposition effect partly explains the contrarian trading by local investors, suggesting that foreign institutions’ tendency to momentum trading cannot be solely attributed to their liquidity provision to local investors.

Modelling of a Proton-Exchange Membrane Electrolysis Cell with Liquid-Fed Cathode

Conventional proton-exchange membrane (PEM) water electrolysers use much thicker membranes (>175 µm) than their PEM fuel cell counterparts (<25 µm), which reduces hydrogen crossover but also reduces electrolyzer efficiency due to the increased Ohmic resistance1. Reduction of hydrogen crossover is critical in conventional systems to avoid buildup of hydrogen in the anode above the lower explosive limit. Due to the use of liquid water at the anode in conventional systems, the anode cannot be flushed with air or an inert gas to reduce the hydrogen concentration.If the liquid water supply is moved to the cathode, the anode can be easily purged with air, reducing the safety concern related to hydrogen crossover. Proof-of-concept experiments2 have demonstrated the viability of this approach, but many open questions remain regarding the interplay between water transport, water consumption, membrane hydration, and cell performance, as well as understanding what components and properties are most important in improving the efficiency of such a device.In this work, a framework for modelling of PEM electrolysis cells will be outlined, with special attention to wet and dry anode conditions. The model will be used to provide guidance for optimizing system performance while contributing to understanding of local processes inside an electrolysis cell such as water transport, heat generation, reaction distribution, and bubble formation. We study the impact of various design and operational choices, such as membrane thicknesses, PTL structure, air feed humidity, and differential pressure operation, on the rate of water transport from cathode to anode and on overall cell polarization performance. Using these results, we provide design recommendations for PEM electrolysers with liquid-fed cathodes. Finally, progress towards an open-source implementation of this model will be discussed.This work has been performed within the HOPE (Revolutionizing Green Hydrogen Production with Next Generation PEM Water Electrolyser Electrodes) and HYSTACK (Low cost, high efficiency PEM electrolyser stack) projects financially supported by the Research Council of Norway under project numbers 325873 and 321466, respectively. Ayers, K. et al. Perspectives on Low-Temperature Electrolysis and Potential for Renewable Hydrogen at Scale. Annu. Rev. Chem. Biomol. Eng. 10, 219–239 (2019).Barnett, A. O. & Thomassen, M. S. Method for producing hydrogen in a PEM water electrolyser system, PEM water electrolyser cell, stack and system. Patent No.: WO 2019/009732. EP3649276B1. US11408081B2.

Enhanced liquid replenishment for pool boiling heat transfer and its CHF mechanism on patterned freeze-casted surfaces

In the current investigation, the pool boiling heat transfer process of patterned porous surfaces, as well as a smooth surface, in ethanol was examined from an academic perspective. The freeze casting (also known as ice-templating) processes was used to fabricate the structured surfaces. It was discovered that freeze-casted coatings significantly improved the performance of boiling heat transfer in comparison to the smooth surface (SMS). The most remarkable increase in Critical Heat Flux (CHF) was achieved by checkerboard porous surface(CHECKERBOARD), with an improvement of 81.6% relative to that of SMS. The maximum Heat Transfer Coefficient (HTC) enhancement was obtained by full porous surface (FULLY-COVERED), with an HTC value 215.8% higher than that of the SMS. For the semicircular porous surface (SEMICIRCULAR), striped porous surface (STRIPED), annular porous surface (ANNULAR) and checkerboard porous surface(CHECKERBOARD) with 50% coating coverage, CHECKERBOARD demonstrated the best heat transfer performance, with CHF and HTC increased by 32.3% and 48.9%, respectively, compared to the SEMICIRCULAR surface. The mechanism of liquid supply at the CHF of the patterned porous surfaces was investigated through phenomenological observations of the boiling phenomena. A modified model, accounting for the coalesced bubble departure frequency and capillary wicking effects, was proposed for CHF prediction. It is noteworthy that the fluid replenishment considers both vertical and lateral replenishment of porous coatings. The CHF data from this study, along with existing literature, were utilized to validate the model, and the predicted results exhibited good agreement with the experimental data, with errors within ±8%.

Performance analysis of PEMEC with non-uniform deformation based on a comprehensive numerical framework coupling image recognition and CFD

Proton exchange membrane electrolysis cell (PEMEC) is widely regarded as an efficient device for producing green hydrogen. Proper clamping pressure during cell assembly can reduce contact resistance while ensuring sealing and safety. Meanwhile, the clamping pressure will cause deformation of the cell components, resulting in increasing mass transfer resistance. However, the evolution law of multi-physical parameters under different clamping pressures has not been fully studied. In this study, a comprehensive numerical framework is proposed for non-uniform deformation and performance analysis of PEMEC. The framework includes three parts: non-uniform deformation model, data transmission based on image recognition, and three-dimensional (3D) multi-phase and multi-physical model. The effects of cell component non-uniform deformation on heat and mass transfer, and electrochemical characteristics are studied. The purity of hydrogen production is also fully taken into consideration. Results show that high clamping pressure causes severe deformation of liquid and gas diffusion layers under the land and a significant decrease in porosity and permeability. In addition, the accumulation of oxygen in the flow channel will weaken the liquid water supply rate and form a high oxygen covered region on the membrane. The current density inhomogeneity in this region will increase significantly with clamping pressure. Although high clamping pressure can obtain low contact resistance and high output hydrogen molar fraction, it also increases mass transfer resistance. An appropriate clamping pressure of 3 MPa is recommended with a lower cell voltage of 2.12 V at 2A/cm2 after considering the physical and chemical properties. The present study can provide helpful guidelines on the design of large-scale electrolyzers.

Long-distance intelligent liquid supply for coal mining faces based on liquid demand prediction

The coal mine pump station liquid supply system adapts to changes in the main pressure for supply, but under conditions of long-distance liquid supply beyond 2000 m, there is a problem with the difficult system response to the hydraulic support liquid demand, resulting in significant pressure fluctuations in the hydraulic system and serious performance degradation of the supply system. To solve this problem, a long-distance intelligent liquid supply method based on liquid demand prediction for coal mining faces is proposed to ensure stable liquid supply. The method integrates parameters such as the mining machine’s position, the hydraulic support’s column pressure before and after the mining machine, the forward travel distance, and action codes to construct a feature vector. Based on the Transformer Model, a Liquid Demand Prediction Model for hydraulic support is established. Attention mechanisms are combined to solve the problem of time prediction for long sequences. The model is validated using real measured data from a hydraulic system in a coal mine, and the experimental results show that the model can accurately predict liquid demand and achieve long-distance intelligent liquid supply for coal mining faced by combining pump station control strategies.

Trading patterns in the bitcoin market

ABSTRACT Despite the growing literature on Bitcoin and other cryptocurrencies, we know relatively little about who are involved in trading, transacting and using these assets and how they behave. Examining millions of Bitcoin transaction records, we show that less than 1% of Bitcoin users contribute to more than 95% of the market volumes. These ‘whales’ are often associated with strategic trading/transaction volumes, market reactions and timing patterns. Using K-means clustering on a comprehensive transaction dataset, we establish a typology of traders by learning their trading exchange patterns, strategies and impact risk and market microstructure. Our approach ‘learns’ and identifies five distinct groups or types of Bitcoin users, which are somewhat, though not entirely, comparable to popular categorisations used in conventional market such as fundamental, technical, retail and institutional traders as well as market makers. Four of these groups present distinguishable trading patterns with a strong impact on liquidity provision and trading signals.

The determinants of limit order cancellations

AbstractAlmost all limit orders are canceled. We examine two economic channels that can motivate cancellations: reductions in the expected profit at execution, and reductions in the probability of execution. An order‐level analysis shows that changes in depth at the best bid and offer prices, as well as changes in the order queue position, influence cancellation in a way consistent with the former channel, that market makers monitor the expected profit at execution of each limit order. Although buy‐side investors use passive orders extensively, our findings indicate that limit order cancellations on aggregate are best understood through models of liquidity provision.

Integrating spheroid-on-a-chip with tubeless rocker platform: A high-throughput biological screening platform.

Spheroid-on-a-chip platforms are emerging as a promising in-vitro model that enables screening of the efficacy of biologically active ingredients. Generally, the supply of liquids to spheroids occurs in the steady flow mode with the use of syringe pumps; however, the utilization of tubing and connections, especially for multiplexing and high-throughput screening applications, makes spheroid-on-a-chip platforms labour- and cost-intensive. Gravity-induced flow using rocker platforms overcomes these challenges. Here, we develop a robust gravity-driven technique to culture arrays of cancer cell spheroids and dermal fibroblast spheroids in a high-throughput manner using a rocker platform. We benchmark the efficiency of the developed rocker-based platform to syringe pumps for generating multicellular spheroids and their use for screening biologically active ingredients. We study cell viability, internal spheroid structure, as well as the effect of vitamin C on the production of collagen type I and fibronectin by dermal fibroblast spheroids. We demonstrate that the rocker-based platform not only offers comparable or enhanced performance in terms of cell viability, spheroids formation, and protein production by dermal fibroblast spheroids but also, from a practical perspective it offers a smaller footprint, requires a lower cost, and offers an easier method for handling. These results support the application of rocker-based microfluidic spheroid-on-a-chip platforms for in-vitro screening in a high-throughput manner with industrial scaling-up opportunities. This article is protected by copyright. All rights reserved.

Pool Boiling Heat Transfer Enhancement through Biphilic Stepped Microchannel

In present study, pool boiling heat transfer (PBHT) from biphilic stepped microchannel comprising: hydrophobic fin top and hydrophilic channel region is investigated. The biphilic stepped microchannel is prepared by mechanical polishing and thermo-catalytic etching. The improved liquid supply pattern, increased nucleation site density, retarded bubble coalescence between the adjacent channel and decreased wall forces acting on the bubble meniscus resulted in the PBHT enhancement. Contact angle of the water droplet on hydrophobic and hydrophilic surface is 74.02° and 22.5°, respectively. Enhancement in critical heat flux and heat transfer coefficient by the biphilic stepped microchannel is 195.52% and 367.00%, respectively.

From bazooka to backstop: the political economy of standing swap facilities

Abstract The permanent international lender of last resort consists of a swap line network between six major central banks (C6), centring around the US Federal Reserve. Arguably, this network is a solution to a long-debated problem as it provides public emergency liquidity provision to the world’s largest financial market, the Eurodollar market. Drawing on exclusive interviews with monetary technocrats as well as a textual analysis of Federal Open Market Committee meeting transcripts over the course of 14 years, we reconstruct how this facility came into being. Building on Kalyanpur and Newman (2017) and Braun (2015), we develop an interpretive framework of bricolage to contextualise its formation: in times of crisis, central bankers rely on retrospection, experimentation and creative re-deployment to develop their tools. In non-crisis times, however, the tools that prevail are those that offer what we call ‘bureaucratic familiarity’: the C6 swap line network became a permanent feature of international finance because technocrats had got used to it.