hard · Market Microstructure
In a competitive dealer market under the Glosten-Milgrom framework, an instrument has a high-value state V_H = 52 and a low-value state V_L = 48, with equal prior probabilities.
If the probability of informed trading α is 0.3, what is the equilibrium ask price set by a risk-neutral dealer?
- 51.20
- 50.00
- 50.60
- 50.30
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