Optimal Dealer Pricing under Transactions and Return Uncertainty*
نویسندگان
چکیده
The paper exammes the optimal behavior of a smgle dealer who 1s faced with a stochastic demand to trade (modeled by a continuous time Pmsson Jump process) and facmg return risk on his stock and on the rest of his portfolio (modeled by diffusion processes). Usmg stochastic dynamic programmmg, we dertve the optimal bid and ask prices that maxnmze the dealer’s expected utility of termmal wealth as a function of the state m which he finds himself. The relationshIp of the bid and ask prices to inventory of the dealer, mstantaneous variance of return, stochastic arrival of transactions and other variables is examined.
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