On Optimal Pricing Model for Multiple Dealers in a Competitive Market

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

Computational Economics, 2019, vol. 53, issue 1, No 17, 397-431

Abstract: 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.

Keywords: Limit order book; Bid and ask quotes; HJB equations; Multiple dealers; Optimal pricing (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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Working Paper: On Optimal Pricing Model for Multiple Dealers in a Competitive Market (2015)
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DOI: 10.1007/s10614-017-9749-6

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