Edge Times Size

Market Making
Fair Value
Medium
The expected terminal price is . A dealer sells units at . What is the expected P&L?
Hint 1

Edge per unit is the sale price minus the expected price.

Hint 2

Multiply by size.

Show worked solution
  1. 1. Edge

  2. 2. Scale

  3. 3. Key idea

    Expected P&L is linear in size: edge per unit times units.

Answer: 30

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