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Market-making, inventories and martingale pricing

Author

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  • Christian At

    (GATE - Groupe d'analyse et de théorie économique - UL2 - Université Lumière - Lyon 2 - ENS LSH - Ecole Normale Supérieure Lettres et Sciences Humaines - CNRS - Centre National de la Recherche Scientifique)

  • Laurent Flochel

    (GATE - Groupe d'analyse et de théorie économique - UL2 - Université Lumière - Lyon 2 - ENS LSH - Ecole Normale Supérieure Lettres et Sciences Humaines - CNRS - Centre National de la Recherche Scientifique)

  • Patrick Roger

    (LARGE - Laboratoire de recherche en gestion et économie - Université Louis Pasteur - Strasbourg I - Université Robert Schuman - Strasbourg III)

Abstract

We discuss Shen and Starr(2002) results and show that the bid-ask spread of a monopolistic market-marker doesn't depend on his inventory when he posts ''martingale prices '' in an inventory model with random volumes and an unknown direction of trade.

Suggested Citation

  • Christian At & Laurent Flochel & Patrick Roger, 2002. "Market-making, inventories and martingale pricing," Post-Print halshs-00178162, HAL.
    • Handle: RePEc:hal:journl:halshs-00178162
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00178162
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    References listed on IDEAS

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    1. Biais, Bruno, 1993. "Price Information and Equilibrium Liquidity in Fragmented and Centralized Markets," Journal of Finance, American Finance Association, vol. 48(1), pages 157-185, March.
    2. Amihud, Yakov & Mendelson, Haim, 1980. "Dealership market : Market-making with inventory," Journal of Financial Economics, Elsevier, vol. 8(1), pages 31-53, March.
    3. Roger, Patrick, 2000. "Properties of bid and ask reservation prices in the rank-dependent expected utility model," Journal of Mathematical Economics, Elsevier, vol. 34(3), pages 269-285, November.
    4. Ho, Thomas & Stoll, Hans R., 1981. "Optimal dealer pricing under transactions and return uncertainty," Journal of Financial Economics, Elsevier, vol. 9(1), pages 47-73, March.
    5. P. Roger & L. Eeckhoudt, 1999. "Risk Aversion and the Bid–Ask Spread," European Financial Management, European Financial Management Association, vol. 5(3), pages 323-340, November.
    6. Ho, Thomas S Y & Stoll, Hans R, 1983. "The Dynamics of Dealer Markets under Competition," Journal of Finance, American Finance Association, vol. 38(4), pages 1053-1074, September.
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    Cited by:

    1. Bams, Dennis & Blanchard, Gildas & Honarvar, Iman & Lehnert, Thorsten, 2017. "Does oil and gold price uncertainty matter for the stock market?," Journal of Empirical Finance, Elsevier, vol. 44(C), pages 270-285.

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