Price taking behavior and trading in options |
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| Authors: | Leonard J Mirman Haim Reisman |
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| Institution: | Department of Economics, University of Illinois, Champaign, Illinois 61820, USA;Department of Economics, Virginia Polytechnic Institute, Blacksburg, Virginia 24060, USA |
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| Abstract: | Equilibrium prices of options are arbitrage prices in economies in which prices are determined endogenously and all agents are price takers. This paper shows that the price taking assumption in options' markets is unreasonable because a small agent can make huge gains by not being a price taker. |
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