medium · Market Microstructure spread-econ
A market maker currently holds an inventory of +5,000 shares (long) when the target inventory is zero.
If the market maker applies quote shading with a parameter κ = 0.0001, how will they adjust their midpoint from the neutral value of $30.05?
- Shift the midpoint up to $30.55 to increase the value of the existing inventory.
- Widen the spread to $0.50 while keeping the midpoint at $30.05.
- Shift the midpoint down to $30.00 to match the current bid.
- Shift the midpoint down to $29.55 to encourage more selling by other participants.
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