A Partial Equilibrium Model of Option Markets

25 Pages Posted: 16 Oct 2000

See all articles by Dietmar Leisen

Dietmar Leisen

Johannes Gutenberg University Mainz - Department of Banking

Kenneth L. Judd

Stanford University - The Hoover Institution on War, Revolution and Peace; Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP); National Bureau of Economic Research (NBER)

Date Written: September 20, 2000

Abstract

This paper addresses the questions who is buying and who is selling options on a stock, the optimal position to hold, and how this affects the price. The individual demand functions and the equilibrium allocation are derived using an asymptotically valid expansion. Trading occurs only at discrete dates; the option does not have to complete the market. The paper also discusses the conditions under which trade results, the importance of heterogeneity for trade, when preferences become irrelevant to price options, and the case in which there is only a spanning demand, but no risk-sharing demand in options.

Keywords: heterogeneity, equilibrium, demand, supply, prices.

JEL Classification: D52, D58, G12, G13

Suggested Citation

Leisen, Dietmar P. J. and Judd, Kenneth L., A Partial Equilibrium Model of Option Markets (September 20, 2000). EFA 0138. Available at SSRN: https://ssrn.com/abstract=243460 or http://dx.doi.org/10.2139/ssrn.243460

Dietmar P. J. Leisen (Contact Author)

Johannes Gutenberg University Mainz - Department of Banking ( email )

Jakob-Welder-Weg 9
Mainz, D-55099
Germany
++49-6131-39 22097 (Phone)
++49-6131-39 23971 (Fax)

HOME PAGE: http://www.finserv.bwl.uni-mainz.de/index_ENG.php

Kenneth L. Judd

Stanford University - The Hoover Institution on War, Revolution and Peace ( email )

Stanford, CA 94305-6010
United States

Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP) ( email )

5735 S. Ellis Street
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
495
rank
54,992
Abstract Views
2,447
PlumX Metrics
!

Under construction: SSRN citations while be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information