Article ID: | iaor19981576 |
Country: | New Zealand |
Volume: | 1 |
Issue: | 2 |
Start Page Number: | 133 |
End Page Number: | 150 |
Publication Date: | Jul 1997 |
Journal: | Journal of Applied Mathematics & Decision Sciences |
Authors: | Schellhorn Henry |
Keywords: | finance & banking, economics |
We model the exchange of commodities that are contingent upon each other, when traders place mostly limit orders. Examples include: (1) a market of financial futures where future spreads are also traded, (2) a market of mutual funds and stocks, (3) a market of options and stocks, under the viewpoint that they are both combinations of Arrow-Debreu securities. We prove that consistent prices are optimal. We develop a fixed-point algorithm to compute an optimal price and allocation. The algorithm combines ideas from contraction mapping theory and from homotopy theory. It is much faster than a traditional linear programming approach.