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Make Me a Market

Market-MakingHard
20 min
40 pts

Description

Quote bid/ask on random fact. Adjust after interviewer trades, manage inventory and adverse selection.

Game Rules

The interviewer asks you to make a market on a random fact (e.g., distance from London to Mumbai). You quote bid/ask. The interviewer may trade with you. How do you adjust your quotes?

Examples

Initial quote: 5000-6000 km

If interviewer buys at your ask, widen spread

Manage inventory risk and adverse selection

Consider information asymmetry

Hints

  • Start conservative with wide spreads

  • Adjust based on trade flow

Solution (Click to reveal)

Start with wide spread, narrow as you get more information. Adjust based on trade flow. Manage inventory and adverse selection risk.

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