Discussion — Reading 6: Jack Treynor

This session covers Reading 6: The Economics of the Dealer Function by Jack Treynor.

• Treynor Study Questions

We've already built an intuition for the Treynor model. This is the article where Treynor spells the original version of that model in which securities dealers profit by selling market liquidity. Dealers make a bid-ask spread inside the value-based traders' outside spread.

From the course website:

"If you want to think about banks as a special kind of dealer, one place to start is with Treynor's model of the economics of the dealer function. Treynor is concerned with security dealers, not banks, but the essential ideas that we need are all there. Dealers make money by supplying market liquidity, which they do by offering trading options. The Treynor diagram that I use in lecture is adapted from this article."

Here is a Treynor Model tutorial video from Perry Mehrling.

• Treynor Model Tutorial

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