A core-selecting auction for portfolio's packages

TL;DR

This paper proposes a novel core-selecting auction mechanism for portfolio packages that reduces seller costs and mitigates free-riding, using a dynamic two-round setup that enhances information revelation.

Contribution

It extends the Nearest-VCG pricing rule to a dynamic two-round auction, introducing an information-revelation mechanism for portfolio trading.

Findings

Mitigates bidders' free-riding incentives

Reduces sellers' costs in portfolio auctions

Aligns with existing iterative auction procedures

Abstract

We introduce the "local-global" approach for a divisible portfolio and perform an equilibrium analysis for two variants of core-selecting auctions. Our main novelty is extending the Nearest-VCG pricing rule in a dynamic two-round setup, mitigating bidders' free-riding incentives and further reducing the sellers' costs. The two-round setup admits an information-revelation mechanism that may offset the "winner's curse", and it is in accord with the existing iterative procedure of combinatorial auctions. With portfolio trading becoming an increasingly important part of investment strategies, our mechanism contributes to increasing interest in portfolio auction protocols.