Quoting Against Informed Flow
An asset is worth , drawn only after you quote. You post a bid and an ask , and 1000 traders arrive:
- 300 are informed: each knows exactly.
- 700 are uninformed: each draws an independent guess and treats it as the value.
Every trader trades at most one unit and only when they expect a profit, so a trader buys from you at when their value estimate exceeds , and sells to you at when it falls below . Choose and to maximise your expected profit.
What is the resulting spread ?
Answer format: round to 3 decimal places.
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