1. Consider a variation of the Glosten-Milgrom sequential trade model where the asset's value V can take three values. Suppose that the true value of stock in Trident Corporation can be, with equal probability, either V" = 3, V = or some middle value VM. Leta of the traders be informed insiders, while the remaining 1-a = are uninformed noise traders. Assume as always that informed traders always buy when V = V and sell when V = V 4, while uninformed traders buy or sell with equal probability. The focus of this problem is the traders' behavior when V = VM. (a) (5) Draw the tree diagram, leaving uncertain the action of informed traders when V = V, Answer: 2/21 1-= 2/3 1/2 d Nature VV = 2 Vzv = 1/4. V vm 5 B B I 1 4/2 5 z w/P \-de 221/3 213 H H 1/2 uncertain 1/31 1/2 B (b) (5) Show that there is no value of VM for which informed traders randomize between buying and selling.