Suppose the price of an asset is 110 with probability 05, Ask an Expert

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Suppose the price of an asset is 110 with probability 0.5 and 90 with probability 0.5. There are uninformed noise traders present who buy or sell one unit of the asset with equal probability, and informed traders who buy one unit if they know the price is 110 and sell one unit if they know the price is 90. There are 9 uninformed traders for every informed trader. The market is cleared by a risk neutral competitive market maker quoting prices at which the trading takes place. What are the initial bid and ask quotes?

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Financial Management, Finance

Category:- Financial Management
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