The optimal bid/ask spread in a Specialist System
Castellano, R and Cerqueti, R (2011). The optimal bid/ask spread in a Specialist System. Economic Modelling. 28 (5), pp. 2247-2253.
|Authors||Castellano, R and Cerqueti, R|
In this work we propose a simple market model where some features of the Specialist System are analyzed. In particular, the specialist's obligation to display bid/ask quotes on the book within the bounds imposed by the Exchange is considered. The proposed model allows to analyze the effects of the specialist's interventions on the short term dynamics of bid/ask prices and address a relevant market design issue, that is determination and analysis of the optimal endogenous upper bound that – according to economic conditions – should be imposed by Stock Exchange on the quoted bid/ask spread. The institutional details are summarized in a few structural parameters and the focus is on the aggregate effects of excess demand/supply.
|Keywords||Dynamic Optimization; Maximum Spread; Specialist; Regulated Brownian Motion|
|Journal citation||28 (5), pp. 2247-2253|
|Digital Object Identifier (DOI)||doi:10.1016/j.econmod.2011.06.019|
|Online||11 Jul 2011|
|Publication process dates|
|Accepted||13 Jun 2011|
|Deposited||07 Apr 2020|
|Accepted author manuscript|
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