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On Optimal Pricing Model for Multiple Dealers in a Competitive Market

Author

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  • Qing-Qing Yang

    (The University of Hong Kong)

  • Jia-Wen Gu

    (Southern University of Science and Technology)

  • Wai-Ki Ching

    (The University of Hong Kong
    Hughes Hall
    Beijing University of Chemical Technology)

  • Tak-Kuen Siu

    (Macquarie University)

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.

Suggested Citation

  • Qing-Qing Yang & Jia-Wen Gu & Wai-Ki Ching & Tak-Kuen Siu, 2019. "On Optimal Pricing Model for Multiple Dealers in a Competitive Market," Computational Economics, Springer;Society for Computational Economics, vol. 53(1), pages 397-431, January.
    • Handle: RePEc:kap:compec:v:53:y:2019:i:1:d:10.1007_s10614-017-9749-6
    DOI: 10.1007/s10614-017-9749-6
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    1. Qing-Qing Yang & Wai-Ki Ching & Jiawen Gu & Tak-Kuen Siu, 2020. "Trading strategy with stochastic volatility in a limit order book market," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 43(1), pages 277-301, June.

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