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Cournot Competition, Financial Option markets and Efficiency

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  • Bert Willems

Abstract

Allaz and Vila (1993) show that the existence of futures markets increases the efficiency of markets in a Cournot setting. This paper looks at the efficiency effect of financial options in a similar framework. It shows that also the existence of financial options makes markets more efficient; though to a smaller extent than futures. This is particularly relevant for markets with market power and costly storage, like the electricity market.

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File URL: http://www.econ.kuleuven.be/eng/ew/discussionpapers/Dps04/Dps0414.pdf
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Bibliographic Info

Paper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën in its series Center for Economic Studies - Discussion papers with number ces0414.

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Date of creation: Mar 2004
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Handle: RePEc:ete:ceswps:ces0414

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Cited by:
  1. Baldursson , Fridrik M. & von der Fehr, Nils-Henrik, 2007. "Vertical Integration and Long-Term Contracts in Risky Markets," Memorandum 01/2007, Oslo University, Department of Economics.
  2. Federico, Giulio & Lopez, Angel L., 2009. "Divesting power," IESE Research Papers D/812, IESE Business School.
  3. Scholz, Sebastian, 2010. "Derivatives and Default Risk," Discussion Papers in Economics 11317, University of Munich, Department of Economics.
  4. Rupp, Thomas, 2006. "Rational Actors in Balancing Markets: a Game-Theoretic Model and Results," Darmstadt Discussion Papers in Economics 36753, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL).
  5. Christian Winzer, 2013. "Robustness of Various Capacity Mechanisms to Regulatory Errors," Cambridge Working Papers in Economics 1338, Faculty of Economics, University of Cambridge.

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