Research On Dynamic Pricing Strategy Of Market Maker Based On Heterogeneous Agents Beliefs

The core of market microstructure is the trading mechanism design, which directly determines the efficiency of the stock market. The market maker mechanism, a vital part of market microstructure, plays an important role in the world’s major developed capital market. The market maker mechanism contributes to achieve the goals such as market high liquidity, high stability and price discovery. Hence, it has become the trading mechanism which possesses the largest global trading volume. However, as Madhavan and Sofianos (1998) say, the market maker’s pricing strategy is not very clear. Which kind of pricing strategy can meet the requirements of market liquidity, price stability and maximization of own utility? Market maker must weigh the pros and cons according to his responsibilities and obligations in the pricing process, thus a reasonable pricing rule can be obtained.This paper studies a intertemporal asset pricing model based on market maker, in which market maker is responsible for clearing the market and maximize the his own wealth utility. This is different from the traditional Walras auctioneer trading mechanism and the former market maker model without two prices, bid and ask price. In addition, consider two types bounded rational agents, fundamental agents and trend chasers. The key character of market can be shown by the interaction between heterogeneous agents and market maker. The conclusion reflects the impact of key parameters on the deterministic difference system’s stability and the stability region. Stochastic system model’s numerical simulation shows the characteristic of aiguille large remaining part and long memory. This conclusion shows that market maker’s prudent pricing strategy can not only provide the market liquidity but also assure the price stability, and make the market price be more reasonable.