The optimal bid/ask spread in a Specialist System

Roy Cerqueti

doi:10.1016/j.econmod.2011.06.019

The optimal bid/ask spread in a Specialist System

Roy Cerqueti

Research output: Contribution to journal › Article › peer-review

2 Citations (Scopus)

Abstract

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.

Original language	English
Pages (from-to)	2247-2253
Journal	Economic Modelling
DOIs	https://doi.org/10.1016/j.econmod.2011.06.019
Publication status	Published - Sept 2011
Externally published	Yes

Keywords

Maximum Spread
Regulated Brownian Motion
Dynamic Optimization
Specialist

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10.1016/j.econmod.2011.06.019Licence: CC BY-NC-ND 4.0

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title = "The optimal bid/ask spread in a Specialist System",

abstract = "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.",

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AB - 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.

KW - Maximum Spread

KW - Regulated Brownian Motion

KW - Dynamic Optimization

KW - Specialist

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DO - 10.1016/j.econmod.2011.06.019

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EP - 2253

JO - Economic Modelling

JF - Economic Modelling

ER -

The optimal bid/ask spread in a Specialist System

Abstract

Keywords

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