Break-even uninformed fraction against pick-offs
Market-making a name, you earn +$0.50 on an uninformed fill but lose $2.00 whenever an informed trader picks you off. What fraction of your fills must be uninformed for you to break even? Give a decimal to two places.
Show hints (2)+
- Let be the uninformed fraction; write and set it to zero.
- The vs asymmetry pushes the break-even fraction well above one-half.
Answer
Reveal answer →Final answer
0.8 (± 0.001)
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Asked at: Timed Mental-Math & Sequences, ETF Market-Making