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Equilibrium bid-ask spread of European derivatives in dry markets

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  • Joao Amaro de Matos
  • Ana Lacerda

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.

Suggested Citation

  • Joao Amaro de Matos & Ana Lacerda, 2006. "Equilibrium bid-ask spread of European derivatives in dry markets," Nova SBE Working Paper Series wp480, Universidade Nova de Lisboa, Nova School of Business and Economics.
    • Handle: RePEc:unl:unlfep:wp480
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    References listed on IDEAS

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