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.
- DOI
- 10.1093/rfs/2.3.275
- Volume
- 2
- Issue
- 3
- Pages
- 275-296
- Language
- en
- Sources
- crossref openalex