Short Communication: Clearing Prices under Margin Calls and the Short Squeeze

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Abstract

In this paper, we propose a clearing model for prices in a financial market due to margin calls on short sold assets. In doing so, we construct an explicit formulation for the prices that would result immediately following asset purchases and a margin call. The key result of this work is the determination of a threshold short interest ratio which, if exceeded, results in the discontinuity of the clearing prices due to a feedback loop.

Original languageEnglish
Pages (from-to)SC113-SC122
JournalSIAM Journal on Financial Mathematics
Volume13
Issue number4
DOIs
StatePublished - 2022

Keywords

  • margin call
  • market clearing
  • short squeeze

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