Equilibrium bid-ask spread of European derivatives in dry markets

Joao Amaro de Matos and Ana Lacerda

Nova SBE Working Paper Series from Universidade Nova de Lisboa, Nova School of Business and Economics

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.

Pages: 61 pages
Date: 2006
New Economics Papers: this item is included in nep-com, nep-eec and nep-fmk
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Persistent link: https://EconPapers.repec.org/RePEc:unl:unlfep:wp480

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