hard · Market Microstructure spread-econ
A market maker in a competitive market quotes a spread for a stock.
If the order processing cost is 0.02, inventory holding cost is 0.03, and the probability of informed trading is α = 0.2 with an expected informational advantage of μ =0.50, what is the total competitive Bid–Ask spread?
- 0.30
- 0.10
- 0.55
- 0.15
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