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Optimal dealer pricing under transaction uncertainty

Author

Listed:
  • Cheng Guo

    (Renmin University of China)

  • Jinwu Gao

    (Renmin University of China)

Abstract

Dealers in securities markets are standing ready immediately to trade certain amounts of securities at stated bid and ask prices. This paper assumes that the amount of transactions follows an uncertain mean-reverting process associated with the bid and ask prices. In order to maximize the dealer’s total wealth, an optimal dealer pricing model under transaction uncertainty is established. And the optimal bid price and ask price over time are derived. Finally, the variations of the optimal bid and ask prices with different parameters are presented.

Suggested Citation

  • Cheng Guo & Jinwu Gao, 2017. "Optimal dealer pricing under transaction uncertainty," Journal of Intelligent Manufacturing, Springer, vol. 28(3), pages 657-665, March.
    • Handle: RePEc:spr:joinma:v:28:y:2017:i:3:d:10.1007_s10845-014-1002-8
    DOI: 10.1007/s10845-014-1002-8
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    References listed on IDEAS

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    Cited by:

    1. Yi Zhang & Jinwu Gao & Zongfei Fu, 2019. "Valuing currency swap contracts in uncertain financial market," Fuzzy Optimization and Decision Making, Springer, vol. 18(1), pages 15-35, March.

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