Department of Mathematics

Prof. Dr. Johannes Muhle-Karbe (Carnegie Mellon University): "Liquidity in Competitive Dealer Markets"

Jul 04, 2018 from 10:15 AM to 11:45 AM

LMS 4 - Raum 526 - Übungsraum


We study a continuous-time version of the intermediation model of Grossman and Miller (1988). To wit, we solve for the equilibrium prices at which liquidity takers' demands are absorbed by competitive, inventory averse dealers, who can in turn gradually transfer these positions to an end-user market. This endogenously leads to a model with transient price impact. Smooth, diffusive, and discrete trades all incur finite but nontrivial liquidity costs, and can arise naturally from the liquidity takers' optimization. (Joint work with Peter Bank and Ibrahim Ekren)


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