security dealers. Specifically, we distinguish three types of uncertainty with respect to informed trading - risk, compound … risk, and ambiguity - for both a monopoly and a duopoly market setting. We find that dealers' bidding behavior is less … aggressive under ambiguity and compound risk than under a risk. Additionally, we find that stochastic models of choice do well in …

, arises because these models load all uncertainty onto the supply side of the economy. We propose a simple theory of asset … pricing in which demand shocks play a central role. These shocks give rise to valuation risk that allows the model to account …

demonstrate that market makers (MMs) adjust their quotes to reduce inventory risk and adverse selection costs. Moreover, robust … averse MM are found to generalize those of a risk averse MM, and coincide in a limiting case …

aggregate risk created by non-participants. We calibrate the heterogeneity in trading technologies to match the equity premium … and the risk-free rate. The calibrated model reproduces the skewness and kurtosis of the wealth distribution in the data … volatility of the risk-free rate …