Market making with convex quotes

Hae-shin Hwang and Paan Jindapon

Finance Research Letters, 2020, vol. 37, issue C

Abstract: We investigate equilibrium properties of a quote-driven market where price is convex in order size. As the degree of convexity increases, the distribution of incoming order contracts and becomes bimodal. Nonetheless, all of these equilibria tolerate the same level of information asymmetry between traders and market makers, and also induce the same distribution of equilibrium price.

Keywords: Market microstructure; Market making; Adverse selection; Risk aversion (search for similar items in EconPapers)
JEL-codes: D8 G1 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:37:y:2020:i:c:s1544612318306329

DOI: 10.1016/j.frl.2019.101361

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