hard · Market Microstructure adverse-selection
Using the Glosten-Milgrom model, consider an asset with a high fundamental value of $105 (V_H) and a low value of $95 (V_L), each with a prior probability of 0.5.
If the probability of an informed trader is α = 0.2, what is the competitive ask price a dealer should set?
- $100.00
- $102.50
- $101.00
- $104.00
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