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On the existence of linear equilibria in models of market making

Publication ,  Journal Article
Bagnoli, M; Viswanathan, S; Holden, C
Published in: Mathematical Finance
January 1, 2001

We derive necessary and sufficient conditions for a linear equilibrium in three types of competitive market making models: Kyle type models (when market makers only observe aggregate net order flow), Glosten-Milgrom and Easley-O'Hara type models (when market makers observe and trade one order at a time), and call markets models (individual order models when market makers observe a number of orders before pricing and executing any of them). We study two cases: when privately informed (strategic) traders are symmetrically informed and when they have differential information. We derive necessary and sufficient conditions on the distributions of the random variables for a linear equilibrium. We also explore those features of the equilibrium that depend on linearity as opposed to the particular distributional assumptions and we provide a large number of examples of linear equilibria for each of the models.

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Published In

Mathematical Finance

DOI

ISSN

0960-1627

Publication Date

January 1, 2001

Volume

11

Issue

1

Start / End Page

1 / 31

Related Subject Headings

  • Finance
  • 4901 Applied mathematics
  • 3502 Banking, finance and investment
  • 1502 Banking, Finance and Investment
  • 0102 Applied Mathematics
 

Citation

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Bagnoli, M., Viswanathan, S., & Holden, C. (2001). On the existence of linear equilibria in models of market making. Mathematical Finance, 11(1), 1–31. https://doi.org/10.1111/1467-9965.00106
Bagnoli, M., S. Viswanathan, and C. Holden. “On the existence of linear equilibria in models of market making.” Mathematical Finance 11, no. 1 (January 1, 2001): 1–31. https://doi.org/10.1111/1467-9965.00106.
Bagnoli M, Viswanathan S, Holden C. On the existence of linear equilibria in models of market making. Mathematical Finance. 2001 Jan 1;11(1):1–31.
Bagnoli, M., et al. “On the existence of linear equilibria in models of market making.” Mathematical Finance, vol. 11, no. 1, Jan. 2001, pp. 1–31. Scopus, doi:10.1111/1467-9965.00106.
Bagnoli M, Viswanathan S, Holden C. On the existence of linear equilibria in models of market making. Mathematical Finance. 2001 Jan 1;11(1):1–31.
Journal cover image

Published In

Mathematical Finance

DOI

ISSN

0960-1627

Publication Date

January 1, 2001

Volume

11

Issue

1

Start / End Page

1 / 31

Related Subject Headings

  • Finance
  • 4901 Applied mathematics
  • 3502 Banking, finance and investment
  • 1502 Banking, Finance and Investment
  • 0102 Applied Mathematics