Parimutuel applications in finance : new markets for new risks / Ken Baron and Jeffrey Lange
Material type:
TextPublication details: Hampshire : Palgrave Macmillan, 2007Description: xxvii, 278p, 23cmISBN: - 1403939500
- 332.6457015195 BAR
| Item type | Current library | Call number | Status | Date due | Item holds |
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Book
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Calcutta | 332.6457015195 BAR (Browse shelf(Opens below)) | Available |
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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