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A Parimutuel Market Microstructure for Contingent Claims


  • Jeffrey Lange
  • Nicholas Economides


"Parimutuel principles are widely used as an alternative to fixed odds gambling in which a bookmaker acts as a dealer by quoting fixed rates of return on specified wagers. A parimutuel game is conducted as a call auction in which odds are allowed to fluctuate during the betting period until the betting period is closed or the auction 'called'. The prices or odds of wagers are set based upon the relative amounts wagered on each risky outcome. In financial microstructure terms, trading under parimutuel principles is characterised by (1) call auction, non-continuous trading; (2) riskless funding of claim payouts using the amounts paid for all of the claims during the auction; (3) special equilibrium pricing conditions requiring the relative prices of contingent claims equal the relative aggregate amounts wagered on such claims; (4) endogenous determination of unique state prices; and (5) higher efficiency. Recently, a number of large investment banks have adopted a parimutuel mechanism for offering contingent claims on various economic indices, such as the US Nonfarm payroll report and Eurozone Harmonised inflation." Copyright Blackwell Publishers Ltd, 2005.

Suggested Citation

  • Jeffrey Lange & Nicholas Economides, 2005. "A Parimutuel Market Microstructure for Contingent Claims," European Financial Management, European Financial Management Association, vol. 11(1), pages 25-49.
  • Handle: RePEc:bla:eufman:v:11:y:2005:i:1:p:25-49

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    References listed on IDEAS

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    Cited by:

    1. Hee Su Roh & Yinyu Ye, 2015. "Market Making with Model Uncertainty," Papers 1509.07155,, revised Nov 2015.
    2. Erhan Bayraktar & Alexander Munk, 2016. "High-Roller Impact: A Large Generalized Game Model of Parimutuel Wagering," Papers 1605.03653,, revised Mar 2017.

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