O'Hara, Maureen; Oldfield, George S. - In: Journal of Financial and Quantitative Analysis 21 (1986) 04, pp. 361-376
This paper examines the influence of risk aversion on the pricing policies of a market maker for securities. It is shown that a market maker's bid-ask spread can be decomposed into a portion for the known limit orders, a risk-neutral adjustment for expected market orders, and a risk adjustment...