A Discrete Choice Approach to Measuring Competition in Equity Option Markets

Michelle Danis
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Michelle Danis: Office of Federal Housing Enterprise Oversight

No 03-05, FHFA Staff Working Papers from Federal Housing Finance Agency

Abstract: This paper examines the relationship between exchange entry and competition in equity option markets. Exchanges compete in thousands of distinct markets, and the entry pattern in each market gives valuable information about profitability. By using a strategic framework, it is assumed that exchanges make interrelated entry decisions. In equilibrium, profits depend on the number of exchanges and in turn the number of exchanges depends on the profit available in a market. This is translated into a discrete choice model of exchange entry behavior.

Pages: 44 pages
Date: 2003-12
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Citations: View citations in EconPapers (3)

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