Security Bid/Ask Dynamics with Discreteness and Clustering: Simple Strategies for Modeling and Estimation
نویسنده
چکیده
This paper proposes a dynamic model of bid and ask quotes that incorporates a stochastic cost of market-making, discreteness (restriction of quotes to a fixed grid) and clustering (the tendency of quotes to lie on " natural " multiples of the tick size). The Gibbs sampler provides a convenient vehicle for estimation. The model is estimated for daily and intradaily US Dollar/Deutschemark Reuters quotes.
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