On optimal pricing model for multiple dealers in a competitive market

Qing Qing Yang, Jia-Wen Gu, Wai-Ki Ching, Tak Kuen Siu

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)

Abstract

In this paper, the optimal pricing strategy in Avellande and Stoikov (Quant. Finance 8:217–224, 2008) for a monopolistic dealer is extended to a general situation where multiple dealers are present in a competitive market. The dealers’ trading intensities, their optimal bid and ask prices and therefore their spreads are derived when the dealers are informed the severity of the competition. The effects of various parameters on the bid-ask quotes and profits of the dealers in the competitive market are also discussed. This study gives some insights on the average spread, profits of the dealers in the competitive trading environment.

Original languageEnglish
Pages (from-to)397-431
Number of pages35
JournalComputational Economics
Volume53
Issue number1
Early online date20 Sep 2017
DOIs
Publication statusPublished - 31 Jan 2019

Keywords

  • Bid and ask quotes
  • HJB equations
  • Limit order book
  • Multiple dealers
  • Optimal pricing

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