Equilibrium Bid-Ask Spread of European Derivatives in Dry Markets

João Amaro de Matos () and Ana Lacerda

FEUNL Working Paper Series from Universidade Nova de Lisboa, Faculdade de Economia

Abstract: In 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.

New Economics Papers: this item is included in nep-com, nep-eec and nep-fmk
Date: 2006
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Persistent link: http://EconPapers.repec.org/RePEc:unl:unlfep:wp480

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