conference-paper Open access

Using a Model of Fraudulent Trader for Fraud Detection

  • UvA-DARE (University of Amsterdam)
  • University of Amsterdam
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Abstract

The technological revolution brought by the internet, high performance computing, and artificial intelligence has fundamentally changed and continues to alter the landscape of finance. These innovations, if used with a malicious intent, can seriously destabilize the financial market. For this reason, counter-measures in the form of new detection methods are needed. In this study, we propose a novel detection framework that uses a model of fraudulent behavior to detect fraud from observed data. A similarity measure is defined to decide if the recorded actions of a monitored trader are matching actions of the fraudulent agent. We illustrate the framework on a simple form of manipulative trading in a simulation environment of a market consisting of two exchanges. This demonstrative case study is inspired by a price manipulation scheme that occurred on the Bitcoin market in 2017/18, where such simple forms of manipulation were observed. Simulation results outline vulnerabilities in markets, where uneven distribution of liquidity is present, as this can be exploited by pump-and-dump scheme.

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Publication details

OpenAlex
W7135623082
Document type
conference-paper
Language
EN
Source
UvA-DARE (University of Amsterdam)
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