The Optimal Pricing Policy of a Monopolistic Marketmaker in the Equity Market
1983; Wiley; Volume: 38; Issue: 1 Linguagem: Inglês
10.2307/2327649
ISSN1540-6261
AutoresEckart Mildenstein, Harold Schleef,
Tópico(s)Stochastic processes and financial applications
ResumoThe Journal of FinanceVolume 38, Issue 1 p. 218-231 Article The Optimal Pricing Policy of a Monopolistic Marketmaker in the Equity Market ECKART MILDENSTEIN, ECKART MILDENSTEINSearch for more papers by this authorHAROLD SCHLEEF, HAROLD SCHLEEFSearch for more papers by this author ECKART MILDENSTEIN, ECKART MILDENSTEINSearch for more papers by this authorHAROLD SCHLEEF, HAROLD SCHLEEFSearch for more papers by this author First published: March 1983 https://doi.org/10.1111/j.1540-6261.1983.tb03637.xCitations: 27 * Europartners Securities Corporation, New York, formerly of Institut fuer Geld-Und Kapitalverkehr, Universitaet Hamburg; and Lewis and Clark College, Portland, Oregon 97219, formerly of the College of Business Administration, University of Oregon, Eugene. We wish to thank Professor Michael Hopewell of the University of Oregon for his helpful comments, and Professor Hartmut Schmidt of the Universitaet Hamburg for suggesting the problem. Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL ABSTRACT This paper presents a stochastic optimization model for marketmaking in security markets with a single dealer. Buy and sell orders are assumed to arrive at rates that are functions of the ask and bid prices. The dealer incurs both proportional and fixed transaction costs as well as portfolio costs. Methods of dynamic programming and semi-Markov Decision Processes are used to characterize optimal pricing policies and to perform sensitivity analysis. Both bid and ask prices are nonincreasing functions of the dealer's inventory. Spread is unrelated to inventory position but positively related to order size. Computational examples demonstrate various results. Citing Literature Volume38, Issue1March 1983Pages 218-231 RelatedInformation
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