IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Do hedging instruments stabilize markets?

Listed author(s):
  • Florian Wagener
  • William Brock
  • Cars Hommes

There is a general argument saying that adding derivative securities (options) to a financial market makes the market more efficient, and has therefore a stabilising effect. We investigate this claim by adding Arrow securities on future states of the world in the asset pricing model with heterogeneous beliefs of Brock and Hommes (1998). We also extend the model to an overlapping generations general equilibrium setting with consumption. The fitness measure underlying the evolutionary switching of investment strategies is realized utility averaged over the different states of the economy. Agents differ in their beliefs about the future market price of the risky asset. If they do not pay much attention to how well other strategies perform, the fundamental equilibrium price is stable; if however agents are sensitive to differences in fitness stability is lost. We investigate whether the introduction of Arrow securities stabilises or destabilises the market, that is, whether the fundamental steady state loses stability sooner or later.

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2004 with number 94.

in new window

Date of creation: 11 Aug 2004
Handle: RePEc:sce:scecf4:94
Contact details of provider: Web page:

More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:sce:scecf4:94. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.