medium · Market Microstructure adverse-selection
According to the Glosten-Milgrom model, a competitive dealer faces two types of traders: informed (probability α = 0.2) and uninformed. The stock value is either V_H = $110 or V_L = $90 with equal probability.
If the dealer wants to break even, what should the ask price be?
- $110.00
- $102.00
- $104.00
- $100.00
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