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Options on Stock Indices, Precious Metals Debt, and Foreign Currency: Tests of Boundary Conditions and Pricing Models

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  • Bailey, Warren

Abstract

This paper presents a model of bidding strategies in takeovers in which initially uninformed bidders must incur costs to learn their valuations of a target. In the case the the bidders' valuations are independent, the first bidder may make a pre-emptive bid, well above the market price of the shares-he does so o deter the second bidder from investigating. In the case that the bidders' valuations are common, the first bidder may bid low to conceal favourable information. I also investigate the relation between the price at which the target is taken over and he cost of investigation of the second bidder.

Suggested Citation

  • Bailey, Warren, 1985. "Options on Stock Indices, Precious Metals Debt, and Foreign Currency: Tests of Boundary Conditions and Pricing Models," University of California at Los Angeles, Anderson Graduate School of Management qt01p8t8s4, Anderson Graduate School of Management, UCLA.
    • Handle: RePEc:cdl:anderf:qt01p8t8s4
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