Robust pricing under strategic trading

• 成果类型: Article
• 署名作者: Gong, Aibo; Ke, Shaowei; Qiu, Yawen; Shen, Rui
• 署名单位: University of Michigan System; University of Michigan; Shanghai University of Finance & Economics; The Chinese University of Hong Kong, Shenzhen
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2021.105201
• 发表日期: 2022
• 关键词: Robust pricing; Strategic trading; ambiguity; Underreaction to public information

摘要

We study strategic trading with a market maker who does not know the joint distribution of public information and an asset's value, and hence cannot interpret information properly. Following a public event, a probabilistically informed trader who knows the distribution and liquidity traders trade. The market maker adopts a robust linear pricing strategy that has the best worst-case payoff guarantee. We show that such a strategy is equivalent to a two-step learning procedure, and characterize the unique linear equilibrium. Expected equilibrium prices exhibit underreaction to public information. If the trading frequency is arbitrarily high, the market maker fully reveals the distribution in the price eventually. (C) 2021 Elsevier Inc. All rights reserved.