Abstract
Derivative instruments have become increasingly important to financial institutions, institutional investors, traders and private individuals throughout the world, both as risk-management tools and as a source of revenue. The volume of over-the-counter (OTC) traded derivatives has increased enormously over the past decade, because institutional investors have often had a need for special derivative products, which are not traded on organized exchanges. An important feature of OTC trading is the bargaining on multiple attributes of a contract such as price, strike price and contract maturity. Negotiation on multiple attributes of a deal is currently not supported by electronic trading floors. In this paper we describe an approach of how to automate the multi-attribute multilateral negotiations using a Web-based trading system. First, we will give an overview of various approaches to supporting or automating negotiations on multiple attributes. Then we will introduce multi-attribute auctions, an extension of single-sided auction theory and analyze preliminary game-theoretic results. Finally, we will show a Web-based electronic trading system for OTC derivatives, based on multi-attribute auctions.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
Ally, J. L., Griffiths, D., Jennings, N. R., Mamdani, E. H., Struthers, A, & Wiegand, M. E., “ADEPT-Advanced Decision Environment for Process Tasks: Overview and Architecture,” Paper presented at the BCS Expert Systems 94 Conference (Applications Track), Cambridge, UK, 1994.
Backhaus, K., Erichson, B., Plinke, W., & Weiber, R., Multivariate Analysemethoden. (8 ed.), Berlin, Germany: Springer, 1996.
Beam, C., Bichler, M., Krishnan, R., & Segev, A., “On negotiations and deal making in electronic markets,” Information Systems Frontiers, 1(1 and 2), 1999.
Bichler, M., Kaukal, M., & Segev, A., “Multi-attribute auctions for electronic procurement,” Paper presented at the First IBM IAC Workshop on Internet Rased Negotiation Technologies, Yorktown Heights, NY. March 18–19, 1999.
Bichler, M., Kumar, M., & Jhingran, A., Competitive Kidding on Multiple Attributes, Hawthorne. NY: IBM Watson Research Lab, 1998.
Binmore, K., & Vulkan, N., “Applying game theory to automated negotiation.” Netnomics, 1(1), 1999, pp. 1–9.
Braneo, F., “The Design of Multidimensional Auctions.” RAND Journal of Economics, 28(1), 1997, pp. 63–81.
Chavez, A., & Maes, P., “Kasbah: An Agent Marketplace for Buying and Selling Goods,” Paper presented at the First International Conference on the Practical Application of Intelligent Agents and Multi-Agent Technology (PAAM’96), London. UK, 1996.
Che, Y.-K., “Design Competition through Multidimensional Auctions.” RAND Journal of Economics, 24(4), 1993, pp. 668–680.
Clemen, R. T., Making Hard Decisions An Introduction to Decision Analysis, Belmont, CA: Wadsworth Publishing Co, 1996.
Cripps, M., & Ireland, N., “The design of auctions and tenders with quality thresholds: the symmetric case,” The Economic Journal, 104. 1994, pp. 316–326.
Dasgupta, S., & Spulber, D. F., “Managing procurement auctions,” Information Economics and Policy, 4, 1989, pp. 5–29.
Engelbrecht-Wiggans, R., “On a possible benefit to bid takers from using multi-stage auctions,” Management Science, 34(9), 1989, pp. 1109–1120.
Foroughi, A., “A Survey of the User of Computer Support for Negotiation,” Journal of Applied Business Research, Spring 1995, pp. 121–134.
Friedman, D., & Rust, J. (Eds.), The Double Auction Market-Institutions, Theories, and Evidence, Reading, Massachusetts: Addison-Wesley, 1993.
Friedman, D., & Sunder, S., Experimental Methods: A Primer for Economists, Cambridge, UK: Cambridge University Press, 1994.
Kagel, J. H., “Auctions: A Survey of Experimental Research,” In J. H. Kagel & A. E. Roth (Eds.), The Handbook of Experimental Economics, Princeton: Princeton University Press, 1995, pp. 501–587.
Keeny, R. L., & Raiffa, H., Decision Making with Multiple Objectives: Preferences and Value Tradeoffs, Cambridge, UK: Cambridge University Press, 1993.
Kersten, G. E., & Noronha, S. J., Negotiation and the Internet: Users’ Expectations and Acceptance, Carleton University, 1998, available at: http://interneg.carleton.ca/interneg/research/interneg/inspire_users/
Koppius, O. R., “Electronic multidimensional auctions: trading mechansims and applications,” Paper presented at the Edispuut Workshop’ 98: E-Commerce-Crossing Boundaries, Rotterdam, The Netherlands, 1998.
Kumar, M., & Feldman, S. I., “Internet Auctions,” Paper presented at the 3rd USEN1X Workshop on Electronic Commerce, Boston, Massachusetts, USA, 1998.
Laffont, J.-J., & Tirole, J., A Theory of Incentives in Procurement and Regulation. Cambridge, Massachusetts: The MIT Press, 1993.
McAfee, R., & McMillan, P. J., “Auctions and Bidding,” Journal of Economic Literature, 25, 1987, pp. 699–738.
McLaughlin, R. M., Over-the-Counter Derivative Products, New York, et al.: McGraw-Hill, 1998.
Milgrom, P. R., & Weber, R. J., “A Theory of Auctions and Competitive Bidding,” Econometrica, 50, 1982, pp. 1089–1122.
Moukas, A., Guttman, R., Zacharia, G., & Maes, P., “Agent-mediated Electronic Commerce: An MIT Media Laboratory Perspective,” to appear in International Journal of Electronic Commerce, 1999.
Myerson, R. B., “Optimal auction design,” Mathematics of Operations Research, 6, 1981, pp. 58–73.
Perkins, W. C., Hershauer, J. C., Foroughi, A., & Delaney, M., “Can a Negotiation Support System Help a Purchasing Manager,” International Journal of Purchasing and Materials Management, Spring 1996, pp. 37–45.
Rosenschein, J. S., & Zlotkin, G., Rules of Encounter: Designing Conventions for Automated Negotiation Among Computers, Cambridge, MA, USA: MIT Press, 1994.
Rothkopf, M. H., & Pekec, A., “Computationally Manageable Combinatorial Auctions,” Paper presented at the Maryland Auction Conference, Maryland, May 29–31, 1998.
Saaty, T. L., The Analytic Hierarchy Process, New York, USA: McGraw Hill, 1980.
Sandholm, T., “Approaches to winner determination in combinatorial auctions,” Decision Support Systems, 1999.
Sierra, C., Faratin, P., & Jennings, N. R., “A Service-Oriented Negotiation Model between Autonomous Agents,” Paper presented at the Proc. 8th European Workshop on Modeling Autonomous Agents in a Multi-Agent World (MAAMAW-97), Ronneby, Sweden, 1997.
Thiel, S. E., “Multidimensional Auctions,” Economics Letters, 28, 1988, pp. 37–40.
Varian, H., “Economic Mechanism Design for Computerized Agents,” Paper presented at the Usenix Workshop on Electronic Commerce, New York, 1995.
Vickrey, W., “Counterspeculation, Auctions, and Competitive Sealed Tenders,” Journal of Finance, 3, 1961, pp. 8–37.
Wilson, R., “Strategic Analysis of Auctions,” In R. J. Aumann & S. Hart (Eds.), Handbook of Game Theory (Vol. 1, pp. 227–271), Amsterdam et al.: North-Holland, 1992.
Wolfstetter, E., “Auctions: An Introduction,” Journal of Economic Surveys, 10(4), 1996, pp. 367–420.
Wurman, P. R., Walsh, W. E., & Wellman, M. P., “Flexible Double Auctions for Electronic Commerce: Theory and Implementation,” Decision Support Systems, 24, 1998, pp. 17–27.
Author information
Authors and Affiliations
Editor information
Rights and permissions
Copyright information
© 2002 Kluwer Academic Publishers
About this chapter
Cite this chapter
Bichler, M. (2002). Trading Financial Derivatives on the Web - An Approach Towards Automating Negotiations on OTC Markets. In: Shaw, M.J. (eds) E-Business Management. Integrated Series in Information Systems, vol 1. Springer, Boston, MA. https://doi.org/10.1007/0-306-47548-0_14
Download citation
DOI: https://doi.org/10.1007/0-306-47548-0_14
Publisher Name: Springer, Boston, MA
Print ISBN: 978-1-4020-7178-2
Online ISBN: 978-0-306-47548-1
eBook Packages: Springer Book Archive