Properties of Bid and Ask Reservation Prices in the Rank-Dependent Expected Utility Model
Posted: 16 Nov 2011
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: 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
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