Treasury Bill Auctions in Spain: an Optimal-Control Approach
ABSTRACT In this paper, we use the Wang and Zender (98) model of auctions, and derive, using optimal control, the optimal bidding strategy in the Spanish Treasury Bill auctions (STBA). Spain is the only country that uses a hybrid system of discriminatory and uniform price auctions: winning bidders pay their bid price if it is lower than the weighted average of winning bids, while all other winning bidders pay the weighted average of winning bids. Wang and Zender derive optimal strategies for alpha-auctions, and discriminatory and uniform auctions are special cases of alpha-auctions. However, STBA are not alpha-auctions, and the characteristics of the auction add complexity to the control problem to be solved. We also derive an expression for the seller's expected revenue and compare it to the alpha-auctions.