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Computational Economics

, Volume 53, Issue 1, pp 397–431 | Cite as

On Optimal Pricing Model for Multiple Dealers in a Competitive Market

  • Qing-Qing Yang
  • Jia-Wen Gu
  • Wai-Ki ChingEmail author
  • Tak-Kuen Siu
Article
  • 83 Downloads

Abstract

In this paper, the optimal pricing strategy in Avellande and Stoikov (Quant. Finance 8:217–224, 2008) for a monopolistic dealer is extended to a general situation where multiple dealers are present in a competitive market. The dealers’ trading intensities, their optimal bid and ask prices and therefore their spreads are derived when the dealers are informed the severity of the competition. The effects of various parameters on the bid-ask quotes and profits of the dealers in the competitive market are also discussed. This study gives some insights on the average spread, profits of the dealers in the competitive trading environment.

Keywords

Limit order book Bid and ask quotes HJB equations Multiple dealers Optimal pricing 

Notes

Acknowledgements

The authors would like to thank the referee and the editor for their helpful comments and suggestions. This research work was supported by Research Grants Council of Hong Kong under Grant Number 17301214 and HKU Strategic Research Theme in Information and Computing and National Natural Science Foundation of China Under Grant number 11671158.

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Copyright information

© Springer Science+Business Media, LLC 2017

Authors and Affiliations

  • Qing-Qing Yang
    • 1
  • Jia-Wen Gu
    • 2
  • Wai-Ki Ching
    • 1
    • 3
    • 4
    Email author
  • Tak-Kuen Siu
    • 5
  1. 1.Advanced Modeling and Applied Computing Laboratory, Department of MathematicsThe University of Hong KongHong KongHong Kong
  2. 2.Department of MathematicsSouthern University of Science and TechnologyShenzhenChina
  3. 3.Hughes HallCambridgeUK
  4. 4.School of Economics and ManagementBeijing University of Chemical TechnologyBeijingChina
  5. 5.Department of Applied Finance and Actuarial Studies, Faculty of Business and EconomicsMacquarie UniversitySydneyAustralia

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