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1. Spoofing the Limit Order Book: A Strategic Agent-Based Analysis

   https://doi.org/10.3390/g12020046  

   Wang, Xintong ; Hoang, Christopher ; Vorobeychik, Yevgeniy ; Wellman, Michael P. ( June 2021 , Games)

   We present an agent-based model of manipulating prices in financial markets through spoofing: submitting spurious orders to mislead traders who learn from the order book. Our model captures a complex market environment for a single security, whose common value is given by a dynamic fundamental time series. Agents trade through a limit-order book, based on their private values and noisy observations of the fundamental. We consider background agents following two types of trading strategies: the non-spoofable zero intelligence (ZI) that ignores the order book and the manipulable heuristic belief learning (HBL) that exploits the order book to predict price outcomes. We conduct empirical game-theoretic analysis upon simulated agent payoffs across parametrically different environments and measure the effect of spoofing on market performance in approximate strategic equilibria. We demonstrate that HBL traders can benefit price discovery and social welfare, but their existence in equilibrium renders a market vulnerable to manipulation: simple spoofing strategies can effectively mislead traders, distort prices and reduce total surplus. Based on this model, we propose to mitigate spoofing from two aspects: (1) mechanism design to disincentivize manipulation; and (2) trading strategy variations to improve the robustness of learning from market information. We evaluate the proposed approaches, takingmore »into account potential strategic responses of agents, and characterize the conditions under which these approaches may deter manipulation and benefit market welfare. Our model provides a way to quantify the effect of spoofing on trading behavior and market efficiency, and thus it can help to evaluate the effectiveness of various market designs and trading strategies in mitigating an important form of market manipulation.« less
2. Equilibrium analysis of electricity markets with day-ahead market power mitigation and real-time intercept bidding

   https://doi.org/10.1145/3538637.3538839  

   Bansal, Rajni Kant ; Chen, Yue ; You, Pengcheng ; Mallada, Enrique ( June 2022 , Proceedings of the Thirteenth ACM International Conference on Future Energy Systems (e-Energy))

   Electricity markets are cleared by a two-stage, sequential process consisting of a forward (day-ahead) market and a spot (real-time) market. While their design goal is to achieve efficiency, the lack of sufficient competition introduces many opportunities for price manipulation. To discourage this phenomenon, some Independent System Operators (ISOs) mandate generators to submit (approximately) truthful bids in the day-ahead market. However, without fully accounting for all participants' incentives (generators and loads), the application of such a mandate may lead to unintended consequences. In this paper, we model and study the interactions of generators and inelastic loads in a two-stage settlement where generators are required to bid truthfully in the day-ahead market. We show that such mandate, when accounting for generator and load incentives, leads to a {generalized} Stackelberg-Nash game where load decisions (leaders) are performed in day-ahead market and generator decisions (followers) are relegated to the real-time market. Furthermore, the use of conventional supply function bidding for generators in real-time, does not guarantee the existence of a Nash equilibrium. This motivates the use of intercept bidding, as an alternative bidding mechanism for generators in the real-time market. An equilibrium analysis in this setting, leads to a closed-form solution that unveils severalmore »insights. Particularly, it shows that, unlike standard two-stage markets, loads are the winners of the competition in the sense that their aggregate payments are less than that of the competitive equilibrium. Moreover, heterogeneity in generators cost has the unintended effect of mitigating loads market power. Numerical studies validate and further illustrate these insights.« less
3. Translucent players: Explaining cooperative behavior in social dilemmas

   https://doi.org/10.1177/1043463119885102  

   Capraro, Valerio ; Halpern, Joseph Y ( November 2019 , Rationality and Society)

   In the past few decades, numerous experiments have shown that humans do not always behave so as to maximize their material payoff. Cooperative behavior when noncooperation is a dominant strategy (with respect to the material payoffs) is particularly puzzling. Here we propose a novel approach to explain cooperation, assuming what Halpern and Pass call translucent players. Typically, players are assumed to be opaque, in the sense that a deviation by one player in a normal-form game does not affect the strategies used by other players. However, a player may believe that if he switches from one strategy to another, the fact that he chooses to switch may be visible to the other players. For example, if he chooses to defect in Prisoner’s Dilemma, the other player may sense his guilt. We show that by assuming translucent players, we can recover many of the regularities observed in human behavior in well-studied games such as Prisoner’s Dilemma, Traveler’s Dilemma, Bertrand Competition, and the Public Goods game. The approach can also be extended to take into account a player’s concerns that his social group (or God) may observe his actions. This extension helps explain prosocial behavior in situations in which previous models ofmore »social behavior fail to make correct predictions (e.g. conflict situations and situations where there is a trade-off between equity and efficiency).« less
4. Bilateral Contracts Between NGPPs and Renewable Plants Can Increase Penetration of Renewables

   https://doi.org/10.23919/ACC.2018.8431253  

   Aguiar, Nayara ; Gupta, Vijay ; Khargonekar, Pramod P. ; Chakraborty, Indraneel ( June 2018 , 2018 Annual American Control Conference (ACC))

   As the renewable penetration in the grid increases, the grid-takes-all-renewable paradigm will no longer be sustainable. We consider a day-ahead (DA) electricity market composed of a renewable generator, a natural gas power plant (NGPP) and a coal power plant (CPP). Each player provides the Independent System Operator (ISO) with their commitment and their asking price. The ISO schedules the generators using a least-cost strategy. Because of the intrinsic uncertainty of the renewable generation, the renewable player might be unable to meet its DA commitment. In the event of a shortfall, the renewable generator incurs a penalty so that the non-renewable sources are not forced to consume the cost of renewable intermittence. It has been recognized that such a penalty can lead to conservative bidding by the renewable generator, which may lead to lower than desired penetration of renewable energy in the grid. We formulate and analyze a contract between the renewable producer and the NGPP so that the NGPP reserves some amount of natural gas to hedge the renewable producer against shortfalls. Expressions for the optimal commitments of the players and for the optimal reserve contract are derived. When a reserve contract is established, we observe an increase both inmore »the average profit of the players involved and in the renewable participation in the market. Thus, we show that a Pareto-optimal contract between market players can improve renewable penetration.« less
5. A Data-Driven Study to Discover, Characterize, and Classify Convergence Bidding Strategies in California ISO Energy Market

   https://doi.org/10.1109/ISGT49243.2021.9372191  

   Samani, Ehsan ; Mohsenian-Rad, Hamed ( February 2021 , IEEE Power & Energy Society Innovative Smart Grid Technologies Conference (ISGT))

   Convergence bidding, has been adopted in recent years by most Independent System Operators (ISOs) in the United States as a relatively new market mechanism to enhance market efficiency. Convergence bidding affects many aspects of the operation of the electricity markets and there is currently a gap in the literature on understanding how the market participants strategically select their convergence bids in practice. To address this open Problem, in this paper, we study three years of real-world market data from the California ISO energy market. First, we provide a data - driven overview of all submitted convergence bids (CBs) and analyze the performance of each individual convergence bidder based on the number of their submitted CBs, the number of locations that they placed the CBs, the percentage of submitted supply or demand and CBs, the amount of cleared CBs, and their gained profit or loss. Next, we scrutinize the bidding strategies of the 13 largest market players that account for 75 % of all CBs in. the California ISO market. We identify quantitative features to characterize and distinguish their different convergence bidding strategies. This analysis results in revealing three different classes of CB strategies that are used in practice. We identifymore »the differences between. these strategic bidding classes and compare their advantages and disadvantages. We also explain how some of the most active market participants are using bidding strategies that do not any of the strategic bidding methods that currently exist in the literature.« less