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Trading of Complex Commodities

Explore a centralized marketplace for trading complex commodities, connecting buyers, sellers, and manufacturers. Examples include car buyers, car dealers, and manufacturers.

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Trading of Complex Commodities

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  1. Trading of Complex Commodities Josh Johnson

  2. Trading Buyers Sellers

  3. For Example Car Buyers Car Dealers

  4. Another Example Car Buyers Car Dealers Manufacturers

  5. Central Marketplace Marketplace

  6. Central Marketplace Necessary? Marketplace

  7. Central Marketplace Necessary? Bulletin board

  8. Central Marketplace Necessary? Bulletin board Middleman

  9. Central Marketplace Necessary? Bulletin board Middleman Auction

  10. Central Marketplace Necessary? Bulletin board Middleman Auction Exchange

  11. Examples of Exchanges • Stock/Commodity exchanges • Specialized exchanges (e.g. specialist systems)

  12. Example of an Order Buy a red Mustang

  13. Example of an Order Buy a red Mustang, less than 2 years old

  14. Example of an Order Buy a red Mustang, less than 2 years old, willing to pay $25,000

  15. Example of an Order Buy a red Mustang, less than 2 years old, willing to pay $25,000 OR Any color Corvette, brand-new, willing to pay $30,000

  16. General Case An order describes a set of items, such as the Mustangs and Corvettes.

  17. General Case An order describes a set of items, such as the Mustangs and Corvettes. The buyer wants to get oneof these items.

  18. Graphical View of an Order Space of all items

  19. Graphical View of an Order Red Mustangs less than 2 years old Space of all items

  20. Graphical View of an Order All color Corvettes made this year Red Mustangs less than 2 years old Space of all items

  21. Price Price is a function of an item. $30,000 Price $25,000 Corvettes Mustangs Space of all items

  22. Buy and Sell Orders Price Buy order

  23. Buy and Sell Orders Price Price Buy order Sell order

  24. Matching Two orders match if they intersect…

  25. Matching Two orders match if they intersect… Price Buy order

  26. Matching Two orders match if they intersect… Sell order Price Buy order

  27. For Example Buy: Red Mustang, Made after 1998, For $25,000 or less OR Any color Corvette, Made in 2001, For $30,000 or less

  28. For Example Buy: Red Mustang, Made after 1998, For $25,000 or less OR Any color Corvette, Made in 2001, For $30,000 or less Sell: 2001 black Mustang, For $24,000 or more OR 1996 red Mustang, For $18,000 or more OR 2001 silver Corvette, For $28,000 or more

  29. For Example Buy: Red Mustang, Made after 1998, For $25,000 or less OR Any color Corvette, Made in 2001, For $30,000 or less Sell: 2001 black Mustang, For $24,000 or more OR 1996 red Mustang, For $18,000 or more OR 2001 silver Corvette, For $28,000 or more Intersect

  30. For Example Buy: Red Mustang, Made after 1998, For $25,000 or less OR Any color Corvette, Made in 2001, For $30,000 or less Sell: 2001 black Mustang, For $24,000 or more OR 1996 red Mustang, For $18,000 or more OR 2001 silver Corvette, For $28,000 or more Fill: 2001 silver Corvette, For $29,000

  31. Fill A result of trading, that is, an item that matches both orders.

  32. Fill A result of trading, that is, an item that matches both orders. Sell order Price Buy order

  33. Formal Definition • An order is • an item set I

  34. Formal Definition • An order is • an item set I,and • a function Price: I R+

  35. Formal Definition • An order is • an item set I,and • a function Price: I R+ • A fill is • an item

  36. Formal Definition • An order is • an item set I,and • a function Price: I R+ • A fill is • an item , and • a price p,such that

  37. Matcher Engine • Limitations: • Specific items in sell orders • Restrictions on buy item sets • No price functions

  38. Specific Sell Orders Good: Sell a red Mustang made in 1999 Bad: Sell any color Mustang made before 1999

  39. Restrictions on Buy Item Sets Good: Bad: Year Year Color Color

  40. No Price Function Good: Bad: Price Price

  41. Matcher Architecture Matcher

  42. Matcher Architecture Orders User interface Matcher Fills Orders User interface Fills Orders User interface Fills

  43. Matcher Architecture Orders User interface Matcher Fills Index of sell orders Orders User interface Fills List of buy orders Orders User interface Fills

  44. Trading Cycle Process all incoming orders Re-match all pending orders Stop trading? No Yes

  45. Matching Process • For each buy order, search the indexing • structure for matching sell orders • When finding matches, generate fills

  46. Fairness • Prefer matches with better prices • Give priority to better-price orders • Give priority to earlier orders

  47. Extensions • Order modification • Disjunctive orders • Confirmations

  48. Running Time • Almost linear in the number of orders • Almost linear in the length of order • description • Memory is the main bottleneck.

  49. Performance • 400 MHz PC with 384 Mbytes memory, • C++ implementation under Windows NT: • 100,000 pending orders • 500 new orders per second

  50. Extended Architecture User Interface Orders Matcher Broker Orders Fills Fills Orders User Interface Fills Broker Orders Orders User Interface Fills Fills

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