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Pricing Seats as Barrier Options. Implications for the Futures Markets

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Financial Modelling

Part of the book series: Contributions to Management Science ((MANAGEMENT SC.))

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Abstract

Trading by locals in futures markets can be implemented through the ownership of one or more “seats”. Seats can be freely traded among market-makers.

This paper presents a seat’s valuation model where the seat’s assignment price is defined as the price of a European down and out call option written on the end of period local’s gross profits earned from the seat-related futures trading, having trading operating costs as the stochastic exercise price. In this way the seat has a subjective instead of a market price.

In our model the seat’s value is an increasing function of the local’s quality, which is signalled by the bid-ask spread quoted by the seat’s owner for his/her current futures trading. The signalling mechanism will be shown to have relevant consequences on the structure of the futures market in terms of market efficiency, competitiveness and growth.

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Author information

Authors and Affiliations

  1. Department of Quantitative Methods, University of Brescia, Contrada S. Chiara 48/B, Brescia, 25122, Italy

    Francesco M. Paris

Authors
  1. Francesco M. Paris
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Editor information

Editors and Affiliations

  1. Department of Financial Economics and Mathematics, University of Valencia, Avda. de los Naranjos s/n., Valencia, 46022, Spain

    María Bonilla , Trinidad Casasús  & Ramón Sala ,  & 

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© 2000 Springer-Verlag Berlin Heidelberg

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Paris, F.M. (2000). Pricing Seats as Barrier Options. Implications for the Futures Markets. In: Bonilla, M., Casasús, T., Sala, R. (eds) Financial Modelling. Contributions to Management Science. Physica, Heidelberg. https://doi.org/10.1007/978-3-642-57652-2_20

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  • DOI: https://doi.org/10.1007/978-3-642-57652-2_20

  • Publisher Name: Physica, Heidelberg

  • Print ISBN: 978-3-7908-1282-4

  • Online ISBN: 978-3-642-57652-2

  • eBook Packages: Springer Book Archive

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