Premiums / Rebates
Premiums and rebates reflect changes in the exchange's liabilities
For each new trade, the AMM charges premium or provides rebate such that the risk level after accepting the trade is kept at the same level as before. In particular, we define premium / rebate
as
where
(
) is the liability before (after) accepting the trade, and
is EVaR of each liability. Note that
implies that the trader pays premium, whereas
implies that the trader receives rebate.
For example, consider the state where the market is long-heavy (or the AMM has a net short exposure). For any additional long order, the AMM charges premium since
. If any trader opens a short position to decrease the long-short imbalance, they will receive rebate.
Last modified 3mo ago