Equilibrium Bid-Ask Spread of European Derivatives in Dry Markets
AbstractIn the framework of incomplete markets, due to the non-existence of trade at some points in time, and using a partial equilibrium analysis, we show how the bid-ask spread of an European derivative is generated. We also ¯nd conditons for the existence of the spread. These conditions concern the market structure of the maret-makers, which can be a oligolopoly with price competition or a monopoly, as well as the riskaversion of the demand and supply of the market.
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Bibliographic InfoPaper provided by Universidade Nova de Lisboa, Faculdade de Economia in its series FEUNL Working Paper Series with number wp480.
Length: 61 pages
Date of creation: 2006
Date of revision:
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Web page: http://www.fe.unl.pt
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-02-05 (All new papers)
- NEP-COM-2006-02-05 (Industrial Competition)
- NEP-EEC-2006-02-05 (European Economics)
- NEP-FMK-2006-02-05 (Financial Markets)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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"Bid, ask and transaction prices in a specialist market with heterogeneously informed traders,"
Journal of Financial Economics,
Elsevier, vol. 14(1), pages 71-100, March.
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