Equilibrium Bid-Ask Spread of European Derivatives in Dry Markets

FEUNL Working Paper No. 480

61 Pages Posted: 19 Feb 2006

See all articles by Joao Amaro de Matos

Joao Amaro de Matos

Nova School of Business and Economics

Ana Lacerda

Nova School of Business and Economics

Date Written: 2006

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 find 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.

Suggested Citation

Amaro de Matos, Joao and Lacerda, Ana, Equilibrium Bid-Ask Spread of European Derivatives in Dry Markets (2006). FEUNL Working Paper No. 480, Available at SSRN: https://ssrn.com/abstract=882796 or http://dx.doi.org/10.2139/ssrn.882796

Joao Amaro de Matos (Contact Author)

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-038
Portugal

HOME PAGE: http://docentes.fe.unl.pt/~amatos

Ana Lacerda

Nova School of Business and Economics ( email )

Campus de Carcavelos
Rua da Holanda, 1
Carcavelos, 2775-405
Portugal

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