Chapter 2 From Market Jaws to the Newton Method: The Geometry of How a Market Can Solve Systems of Equations

Abstract

Publisher This chapter focuses on the geometry of how a market can solve systems of equations from market jaws to the newton method. Since market equilibrium can be interpreted as a solution to a system of equations, “price discovery,” as it called in the language of market makers, can be viewed as having “found” the solution. Of course the information needed to even formulate the equations does not exist in one place so the idea that markets are “searching” for the solution to a system of equations as a numerical process would search, cannot be taken literally. The empirical foundation for jaws can be found in many forms. When markets are on the way up the number of bids typically exceeds t..