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arxiv: 2102.02176 · v4 · pith:JB4MXGADnew · submitted 2021-02-03 · 💱 q-fin.MF · q-fin.GN· q-fin.RM

Clearing prices under margin calls and the short squeeze

classification 💱 q-fin.MF q-fin.GNq-fin.RM
keywords pricesclearingmarginshortcallsresultassetassets
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In this paper, we propose a clearing model for prices in a financial markets 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.

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