ENGLISH

Parimutuel Applications In Finance: New Markets for New Risks

By Ken Baron , Jeffrey Lange

Book information

Publisher
Palgrave Macmillan
Year
2007
ISBN
9781403939500, 9781403939500
LCC
HG6024.A3 B373 2007
Open Library ID
OL17174466M
Language
english
Format
PDF
Filesize
1 MB (1401003 bytes)
Series
Finance and Capital Markets
Pages
307\307
Topic
Economy
Library
demonoid.me
Time added
2011-04-11 19:55:47

Description

Financial intermediaries supply derivatives to their customers when they can hedge the exposures from these transactions. A static hedge is typically employed by arranging an offsetting transaction with a different customer or a dynamic hedge by trading in the underlying derivatives. There is however a broad range of uncertain exposures where intermediaries tend not to offer derivatives or risk management products, as they are unable to hedge the resulting exposures. Baron and Lange suggest a parimutuel auction system adapted from the betting industry as a solution to this problem. They introduce the parimutuel mechanism and the modifications required to apply the mechanism to the capital markets. The PDCA auction and its mechanics are analyzed and finally the mathematics behind the system are described and illustrated.

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