Properties of Bid and Ask Reservation Prices in the Rank-Dependent Expected Utility Model

Posted: 16 Nov 2011

See all articles by Patrick Roger

Patrick Roger

Strasbourg University - LARGE Research Center - EM Strasbourg Business School

Date Written: January 15, 2000

Abstract

Bid and ask reservation prices, posted by market makers on price-driven financial markets, are studied in the framework of the rank-dependent expected utility model. We study the inventory effect and prove that bid (ask) prices are increasing and concave (convex) functions of the quantity to be bought (sold). We analyze general properties of the bid-ask spread and specify them more precisely in the context of the dual theory of Yaari.

Keywords: Bid–ask spread, Market makers, Rank-dependent expected utility model

JEL Classification: D81

Suggested Citation

Roger, Patrick, Properties of Bid and Ask Reservation Prices in the Rank-Dependent Expected Utility Model (January 15, 2000). Journal of Mathematical Economics, Vol. 34, 2000, Available at SSRN: https://ssrn.com/abstract=1960104

Patrick Roger (Contact Author)

Strasbourg University - LARGE Research Center - EM Strasbourg Business School ( email )

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