Review of Financial Studies Vol. 2 No. 3 1989
Optimal Innovation of Futures Contracts
Abstract
[This article presents a simple model of the innovation of new futures contracts by transaction volume-maximizing futures exchanges in incomplete markets under uncertainty, with mean-variance preferences and proportional transactions costs. We characterize the set of Nash equilibria for a number of exchanges simultaneously or sequentially choosing contracts. The optimal monopolistic contract design is shown to be Pareto-optimal. An example shows the failure of Pareto optimality for a particular Nash equilibrium. Likewise, in a monopolistic multiperiod setting, an example shows the failure of Pareto optimality given an incentive for the exchange to induce turnover.]
- Volume
- 2
- Issue
- 3
- Pages
- 275-296
- Sources
- bibtex:phds-export.bib