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Market making with convex quotes

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  • Hwang, Hae-shin
  • Jindapon, Paan

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.

Suggested Citation

  • Hwang, Hae-shin & Jindapon, Paan, 2020. "Market making with convex quotes," Finance Research Letters, Elsevier, vol. 37(C).
    • Handle: RePEc:eee:finlet:v:37:y:2020:i:c:s1544612318306329
    DOI: 10.1016/j.frl.2019.101361
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    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G1 - Financial Economics - - General Financial Markets

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