A Learning Market-Maker in the Glosten-Milgrom Model

@inproceedings{Das2004ALM,
  title={A Learning Market-Maker in the Glosten-Milgrom Model},
  author={Sanmay Das},
  year={2004}
}
This paper develops a model of a learning market-maker by extending the GlostenMilgrom model of dealer markets. The market-maker tracks the changing true value of a stock in settings with informed traders (with noisy signals) and liquidity traders, and sets bid and ask prices based on its estimate of the true value. We empirically evaluate the performance of the market-maker in markets with different parameter values to demonstrate the effectiveness of the algorithm, and then use the algorithm… CONTINUE READING
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