Bid and Ask Prices Tailored to Traders’ Risk-Aversion and Gain-Propension

20 Pages Posted: 9 Jun 2011

See all articles by Marta Cardin

Marta Cardin

Ca Foscari University of Venice - Dipartimento di Economia

Bennet Eisenberg

Lehigh University - Industrial and Systems Engineering Department

Luisa Tibiletti

University of Turin - Department of Management

Date Written: May 17, 2011

Abstract

Bid and ask prices tailored to the traders’ risk-aversion and gain-propension are defined. Risk and gain premia are given by the Extended Gini indices, where the characteristic parameter captures the traders’ perception of the under-performance and over-performance of the asset. Sufficient and necessary conditions for successful trading are set out. The bid-ask price spread and the so-called probability of trading are used to measure the chances of trading. Numerical tables for these measures are given for the most common distributions and different levels of buyer’s risk-aversion and seller’s gain-propension.

Keywords: Extended Gini Index, bid and ask prices, pessimism and optimism index

JEL Classification: G10, G11, G12, G29

Suggested Citation

Cardin, Marta and Eisenberg, Bennet and Tibiletti, Luisa, Bid and Ask Prices Tailored to Traders’ Risk-Aversion and Gain-Propension (May 17, 2011). Available at SSRN: https://ssrn.com/abstract=1860343 or http://dx.doi.org/10.2139/ssrn.1860343

Marta Cardin (Contact Author)

Ca Foscari University of Venice - Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
Italy

Bennet Eisenberg

Lehigh University - Industrial and Systems Engineering Department ( email )

Harold S. Mohler Laboratory
200 West Packer Avenue
Bethlehem, PA 18015-1582
United States

Luisa Tibiletti

University of Turin - Department of Management ( email )

C.so Unione Sovietica, 218 bis
Turin, Turin 10100
Italy
39-11-670-6229 (Phone)
39-11-670-6238 (Fax)

HOME PAGE: http://www.management.unito.it/tibiletti

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