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Competition without fungibility : evidence from alternative market structures for derivatives

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Bartram, Söhnke M. and Fehle, Frank R. (2007) Competition without fungibility : evidence from alternative market structures for derivatives. Journal of Banking and Finance, 31 (3). pp. 659-677. doi:10.1016/j.jbankfin.2006.02.004 ISSN 0378-4266 .

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Official URL: http://dx.doi.org/10.1016/j.jbankfin.2006.02.004

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Abstract

In this paper, we compare option contracts from a traditional derivatives exchange to bank-issued options, also referred to as covered warrants. While bank-issued option markets and traditional derivatives exchanges exhibit significant structural differences such as the absence of a central counterparty for bank-issued options, they frequently exist side-by-side, and the empirical evidence shows that there is significant overlap in their product offerings although options are not fungible between the two markets. The empirical analysis indicates that bid-ask spreads in either market are lowered by 1–2% due to competition from the other market, providing evidence that the benefits of competing market structures are available in the absence of fungibility.

Item Type: Journal Article
Divisions: Faculty of Social Sciences > Warwick Business School
Journal or Publication Title: Journal of Banking and Finance
Publisher: Elsevier BV
ISSN: 0378-4266
Official Date: 2007
Dates:
DateEvent
2007Published
Volume: 31
Number: 3
Page Range: pp. 659-677
DOI: 10.1016/j.jbankfin.2006.02.004
Status: Peer Reviewed
Publication Status: Published
Access rights to Published version: Restricted or Subscription Access

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