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Two price economic equilibria and financial market bid/ask prices

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dc.contributor.authorElliott, R.J.
dc.contributor.authorMadan, D.B.
dc.contributor.authorSiu, T.K.
dc.date.issued2021
dc.description.abstractDemand and supply uncertainty lead to a model of markets that set prices to acceptable risk levels for excess supplies and net revenues. The result is a two price partial equilibrium economy. The equilibrium solutions are applied to two price financial market data to infer demand and supply elasticities and log normal volatilities from market quotes on bid and ask prices. Demand elasticities are observed to be higher than supply elasticities as are the volatilities. Normalizing observed volatilities to the volatility of the daily traded volume a market implied duration of the economic equilibrium is inferred. The median level of duration is around a minute and half with an interquartile range from 37 s to 2 min. For larger orders, bid and ask prices may be constructed by calibrating the demand and supply volatilities.
dc.identifier.citationAnnals of Finance, 2021; 17(1):27-43
dc.identifier.doi10.1007/s10436-020-00377-x
dc.identifier.issn1614-2446
dc.identifier.issn1614-2454
dc.identifier.urihttps://hdl.handle.net/11541.2/145299
dc.language.isoen
dc.publisherSpringer
dc.relation.fundingARC DP190102674
dc.rightsCopyright 2020 Springer-Verlag Access Condition Notes: Accepted manuscript available after 1 January 2022
dc.source.urihttps://doi.org/10.1007/s10436-020-00377-x
dc.subjectacceptable risks
dc.subjectdistorted expectations
dc.subjectminmaxvar distortion
dc.subjectconvex risk measures
dc.titleTwo price economic equilibria and financial market bid/ask prices
dc.typeJournal article
pubs.publication-statusPublished
ror.fileinfo12207865540001831 13207865530001831 TPEBA4.pdf
ror.mmsid9916460906801831

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