[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/inm/ormoor/v48y2023i3p1286-1315.html
   My bibliography  Save this article

Liquidity Provision with Adverse Selection and Inventory Costs

Author

Listed:
  • Martin Herdegen

    (Department of Statistics, University of Warwick, Coventry CV4 7AL, United Kingdom)

  • Johannes Muhle-Karbe

    (Department of Mathematics, Imperial College London, London SW7 2AZ, United Kingdom)

  • Florian Stebegg

    (Department of Statistics, Columbia University, New York, New York 10027)

Abstract
We study one-shot Nash competition between an arbitrary number of identical dealers that compete for the order flow of a client. The client trades either because of proprietary information, exposure to idiosyncratic risk, or a mix of both trading motives. When quoting their price schedules, the dealers do not know the client’s type but only its distribution, and in turn choose their price quotes to mitigate between adverse selection and inventory costs. Under essentially minimal conditions, we show that a unique symmetric Nash equilibrium exists and can be characterized by the solution of a nonlinear ordinary differential equation.

Suggested Citation

  • Martin Herdegen & Johannes Muhle-Karbe & Florian Stebegg, 2023. "Liquidity Provision with Adverse Selection and Inventory Costs," Mathematics of Operations Research, INFORMS, vol. 48(3), pages 1286-1315, August.
    • Handle: RePEc:inm:ormoor:v:48:y:2023:i:3:p:1286-1315
    DOI: 10.1287/moor.2022.1294
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/moor.2022.1294
    Download Restriction: no
    File URL: https://libkey.io/10.1287/moor.2022.1294?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormoor:v:48:y:2023:i:3:p:1286-1315. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.