We consider a dynamic asset pricing model with one asset, in which one informed trader trades against liquidity traders and competitive market makers. Informed trader has private information about the fundamental value of the asset as well as the exogenous demand shock on the market. We characterize the unique linear Markov equilibrium of the model. With just the private information about funda...

Traders that operate in markets with multiple competing marketplaces must often choose with which marketplace they will trade. These choices encourage marketplaces to seek competitive advantages against each other by adjusting various parameters, such as the price they charge, or how they match buyers and sellers. Traders can take advantage of this competition to improve utility. However, appro...

In this study, we compare the performance of trading strategies based on possibly mis-specified mathematical models with a trading strategy based on a technical trading rule. In both cases, the trader attempts to predict a change in the drift of the stock return occurring at an unknown time.We explicitly compute the trader’s expected logarithmic utility of wealth for the various trading strateg...

In a multi-product market, if one product stocks out, consumers may substitute to competing products. In this thesis, we use an axiomatic approach to characterize a price-dependent demand substitution rule, and provide a sufficient and necessary condition for demand models where our demand substitution rule applies. Our results can serve as a link between the pricing and inventory literature, a...

In evaluating prediction markets (and other crowd-prediction mechanisms), investigators have repeatedly observed a socalled wisdom of crowds effect, which can be roughly summarized as follows: the average of participants performs much better than the average participant. The market price— an average or at least aggregate of traders’ beliefs—offers a better estimate than most any individual trad...

This paper analyzes models of securities markets with a single strategic informed trader and competitive market makers. In one version, uninformed trades arrive as a Brownian motion and market makers see only the order imbalance, as in Kyle (1985). In the other version, uninformed trades arrive as a Poisson process and market makers see individual trades. This is similar to the Glosten–Milgrom ...

This paper addresses several questions surrounding volatility forecasting and its use in the estimation of optimal hedging ratios. Specifically: Are there economic gains by nesting time-series econometric models (GARCH) and dynamic programming models (therefore forecasting volatility several periods out) in the estimation of hedging ratios whilst accounting for volatility in the futures bid–ask...