Positivity of bid-ask spreads and symmetrical monotone risk aversion

Theory and Decision 52 (2):149-170 (2002)
Abstract
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
Options
 Save to my reading list
Follow the author(s)
Edit this record
My bibliography
Export citation
Find it on Scholar
Mark as duplicate
Request removal from index
Revision history
Download options
Our Archive


Upload a copy of this paper     Check publisher's policy     Papers currently archived: 29,827
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
Risk and Risk Aversion for State-Dependent Utility.David Kelsey - 1992 - Theory and Decision 33 (1):71-82.
Expected Utility and Risk.Paul Weirich - 1986 - British Journal for the Philosophy of Science 37 (4):419-442.
Even Risk-Averters May Love Risk.Alfred Müller & Marco Scarsini - 2002 - Theory and Decision 52 (1):81-99.
Scale Construction From a Decisional Viewpoint.Michael Smithson - 2006 - Minds and Machines 16 (3):339-364.
Loss Aversion and Bargaining.Jonathan Shalev - 2002 - Theory and Decision 52 (3):201-232.
Risk, Uncertainty and Hidden Information.Stephen Morris - 1997 - Theory and Decision 42 (3):235-269.
Added to PP index
2010-09-02

Total downloads
50 ( #113,443 of 2,210,107 )

Recent downloads (6 months)
2 ( #222,637 of 2,210,107 )

How can I increase my downloads?

Monthly downloads
My notes
Sign in to use this feature