We introduce a class of utility-based market makers that always accept orders at their risk-neutral prices. We derive necessary and sufficient conditions for such market makers to have bounded loss. We prove that hyperbolic absolute risk aversion utility market makers are equivalent to weighted pseudospherical scoring rule market makers. In particular, Hanson’s logarithmic scoring rule market m...

The quality of information in financial asset markets is often hard to estimate. This paper analyzes information transmission in asset markets when agents treat information of unknown quality as ambiguous. We study the effects of information ambiguity on asset prices, trading volume, and market liquidity in noisy rational expectations equilibrium. We consider a market with risk-averse informed ...

A common problem is to choose a “risk neutral” measure in an incomplete market in asset pricing models. We show in this paper that in some circumstances it is possible to choose a unique “equivalent local martingale measure” by completing the market with option prices. We do this by modeling the behavior of the stock price X , together with the behavior of the option prices for a relevant famil...

We consider the problem of valuation of certain Asian options in the geometric jump-diffusion models with continuously dividend-paying assets. With the sources of diffusion risks and two primitive tradeable assets, the market in this model is, in general, incomplete, and so, there are more than one equivalent martingale measures and no-arbitrage prices. For this jump-diffusion model, we adopt t...

This paper presents a model on the leverage of …nancial intermediaries, where debt are held by risk averse agents and equity by the risk neutral. The paper shows that in an unregulated competitive market, …nancial intermediaries choose to be leveraged over the social best level. This is because the leverage of one intermediary imposes a negative externality upon others by reducing their pro…t m...

Switching between electronic and traditional markets, consumers nowadays impact profoundly on market makers. To successful conduct business, firms have to carefully making channel decisions to meet the needs of customers. The purpose of this article is to offer normative models for analyzing consumer channel selection behaviors between traditional and electronic markets. Referred to transaction...

The bidding decision making problem is studied from a supplier’s viewpoint in a spot market environment. The decision-making problem is formulated as a Markov Decision Process a discrete stochastic optimization method All other suppliers are modeled by their bidding parameters with corresponding probabilities. A systematic method is developed to calculate transition probabilities and rewards. A...

We consider a closed economy where a risk neutral bank competes with a competitive bond market. Firms can finance a risky project either by a bank credit or by issuing a bond which is directly sold to risk averse investors who also can hold safe deposits at the bank. We show that a monopolistic bank tends to allocate more capital to lower quality projects but there are some interesting qualific...

This paper examines the effectiveness of fiscal policy in a general equilibrium macromodel with transactions money and an oligopolistic product market. The results suggest that although money may be neutral and play no direct role as policy instrument, its indirect impact on the effectiveness of fiscal policy can be quite substantial. In particular, (i) fiscal policy becomes ineffective as the ...

We study the market for credit default swaps (CDS) between 2003 and 2008 in order to understand origins of the well documented tendency for credit spreads on diverse issues to periodically undergo large, common adjustments in the same direction and of similar magnitudes. Our methodology allows us to distinguish co-movements that reflect common revisions in the statistical default distribution f...