Equilibrium in Market Maker Models

Abstract

Considering informed traders' information endogenous production cost and uninformed traders' strategic trading, this paper establishes a gamble model among market maker, informed and uninformed traders using rational expectation idea. It gives and proves the necessary and sufficient condition of the existence of a unique linear equilibrium in market and gets the analytical form of the equilibrium. This model is the extension of the general strategic rational expectation model. The results will be beneficial to further researches such as the optimal market mechanism design, and so on.