6533b860fe1ef96bd12c3875
RESEARCH PRODUCT
A Partial Equilibrium Model of Option Markets
Dietmar LeisenKenneth L. JuddKenneth L. Juddsubject
Demand managementMicroeconomicsDemand curvePartial equilibriumEconomicsAsian optionDerived demandStock (geology)description
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.
| year | journal | country | edition | language |
|---|---|---|---|---|
| 2000-01-01 | SSRN Electronic Journal |