medium · Market Microstructure
A dealer in a stock with high volatility (σ^2 = 1.0) currently holds a long inventory of +5,000 shares.
If the dealer uses a quote shading parameter of κ = 0.00004 to manage inventory, what is the expected shift in the midpoint of their quotes?
- + $0.20
- No shift is required.
- - $0.20
- - $1.00
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