Abstract
Traditional analyses with incomplete markets take the securities that are traded as exogenous. In this paper we endogenize the market structure by considering incentives to introduce (costly) options exchanges which issue derivative securities. The method of financing the exchange is critical in determining whether the market structure is socially efficient. If the exchange can charge fees to all agents and make every agent's participation a necessary condition for establishing the exchange then the market structure chosen in equilibrium is efficient. However, if either of these conditions is not satisfied then an inefficient market structure may be chosen.
Original language | English (US) |
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Pages (from-to) | 17-46 |
Number of pages | 30 |
Journal | The Geneva Papers on Risk and Insurance Theory |
Volume | 15 |
Issue number | 1 |
DOIs | |
State | Published - Mar 1990 |
ASJC Scopus subject areas
- Accounting
- General Business, Management and Accounting
- Finance
- Economics and Econometrics