Take the 2-minute tour ×
Quantitative Finance Stack Exchange is a question and answer site for finance professionals and academics. It's 100% free, no registration required.

Implementing Hanson's Market Maker states:

If the market maker wants to quote a "current price", he can. The current price for outcome 1 is:

$$ \mbox{price1} = \frac{e^{\frac{q1}{b}}}{e^{\frac{q1}{b}} + e^{\frac{q2}{b}}} $$

Why this is the case? Is it just some simple "see-saw" algorithm? Exert pressure on one side and it will simply radiate across into the corresponding +/- price change?

I am asking in the context of writing a simple market-making algorithm to offer bids and quotes (on a virtual market), but this seems too simple.

share|improve this question
Is this related to your university project? –  chrisaycock Apr 24 '13 at 19:55
Its related to the algorithm I linked to in the question. –  user997112 Apr 24 '13 at 20:33
add comment

Your Answer


By posting your answer, you agree to the privacy policy and terms of service.

Browse other questions tagged or ask your own question.