You are a market maker in the stock of Pfizer (PFE) and quote a bid...
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Finance
You are a market maker in the stock of Pfizer (PFE) and quote a bid of $102.25 and an ask of $102.50. Suppose that you have zero inventory.
(a) On Day 1, you receive market buy orders for 10,000 shares and market sell orders for 4,000 shares. How much do you earn on the 4,000 shares that you bought and sold? What is the value of your inventory at the end of the day?
(Hints: It is possible to have negative inventory. Further, there is more than one correct way to value your inventory, but please state what assumption your valuation is based on.)
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