1 [50% total] A variant of the Glosten-Milgrom model. The underlying stock can take on one of three values: VoV V. with probabilities &y, ,.. and dy; = 1 &y by, respectively. # The informed trader can decide whether to buy, sell or make no trans- action. # In the event that a trade would yield zero or negative profit, the informed trader will not trade. # The uninformed traders always trade. = The model is dynamic, that is, traders are repeatedly drawn and are given the opportunity to trade with the dealer. # The dealer is a monopolist. Comment on the following: 1.1 What is the optimal strategy of the informed trader? [20%] 1.2 What is the optimal pricing scheme of the dealer? [20%] 1.3 If the dealer executes trader with many traders over time, what happens to the bid and ask prices? [10%]