Positivity of bid-ask spreads and symmetrical monotone risk aversion

Theory and Decision 52 (2):149-170 (2002)
A usual argument in finance refers to no arbitrage opportunities for the positivity of the bid-ask spread. Here we follow the decision theory approach and show that if positivity of the bid-ask spread is identified with strong risk aversion for an expected utility market-maker, this is no longer true for a rank-dependent expected utility one. For such a decision-maker only a very weak form of risk aversion is required, a result which seems more in accordance with his actual behavior. We conclude by showing that the no-trade interval result of Dow and Werlang (1992a) remains valid for a rank-dependent expected utility market-maker merely exhibiting this weak form of risk aversion
Keywords Bid-ask spread  Hedging  Risk aversion  SMRA
Categories (categorize this paper)
DOI 10.1023/A:1015560016516
 Save to my reading list
Follow the author(s)
My bibliography
Export citation
Find it on Scholar
Edit this record
Mark as duplicate
Revision history Request removal from index
Download options
PhilPapers Archive

Upload a copy of this paper     Check publisher's policy on self-archival     Papers currently archived: 24,433
External links
Setup an account with your affiliations in order to access resources via your University's proxy server
Configure custom proxy (use this if your affiliation does not provide a proxy)
Through your library
References found in this work BETA

No references found.

Add more references

Citations of this work BETA

No citations found.

Add more citations

Similar books and articles
Paul Weirich (1986). Expected Utility and Risk. British Journal for the Philosophy of Science 37 (4):419-442.
Jonathan Shalev (2002). Loss Aversion and Bargaining. Theory and Decision 52 (3):201-232.

Monthly downloads

Added to index


Total downloads

48 ( #101,425 of 1,925,067 )

Recent downloads (6 months)

22 ( #23,081 of 1,925,067 )

How can I increase my downloads?

My notes
Sign in to use this feature

Start a new thread
There  are no threads in this forum
Nothing in this forum yet.