Discussion — Reading 6: Jack Treynor

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

We already understand the Treynor model fairly well from the last few lectures. This article provides a more formal description of the securities market version of the model introduced in Lecture 10. In Lecture 11, Perry generalized the Treynor model for use in the term funding market and the overnight borrowing market, but Treynor doesn't go that far.

Perry Mehrling says:

"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."

The reading formalizes something we've already built an intuition for. It might be useful to read the study questions before reading the article.

Study Questions

And if you haven't seen Perry's Treynor Model tutorial video, it might be useful to watch that first too.

Treynor Model Tutorial

Treynor Reading Discussion Thread