An automated market maker's adverse-selection cost (LVR) equals the funding fee of a replicating portfolio of perpetual continuous-installment puts, enabling forward-looking LVR estimation and liquidity-band design.
The replicating portfolio of a constant product market
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Modeling Loss-Versus-Rebalancing in Automated Market Makers via Continuous-Installment Options
An automated market maker's adverse-selection cost (LVR) equals the funding fee of a replicating portfolio of perpetual continuous-installment puts, enabling forward-looking LVR estimation and liquidity-band design.