4. Microstructure Developments in Derivative Markets
- H. Kent Baker and
- Halil Kiymaz
Published Online: 23 AUG 2013
Copyright © 2013 John Wiley & Sons, Inc. All rights reserved
Market Microstructure in Emerging and Developed Markets: Price Discovery, Information Flows, and Transaction Costs
How to Cite
Moser, J. T. (2013) Microstructure Developments in Derivative Markets, in Market Microstructure in Emerging and Developed Markets: Price Discovery, Information Flows, and Transaction Costs (eds H. K. Baker and H. Kiymaz), John Wiley & Sons, Inc., Hoboken, NJ, USA. doi: 10.1002/9781118681145.ch4
- Published Online: 23 AUG 2013
- Published Print: 16 AUG 2013
Print ISBN: 9781118278444
Online ISBN: 9781118681145
- commodity contracts.
Derivative markets convey contracts between counterparties. Fundamental valuations for these contracts derive from the prices of commodities or other financial assets. To these valuations, market participants add costs arising from contract features mitigating the risk that a counterparty may fail to perform the terms of the contract and those costs owing to participation in the trading technology. This chapter reviews the literature covering the microstructural aspects of three trading technologies: the ttonnement, open outcry, and electronic market. Ttonnement is the theoretical marketplace of Walras and its implementation at the Tokyo Grain Exchange. Open outcry venues dominated the Chicago markets for over 100 years. Electronic markets have rapidly displaced more traditional venues. The chapter examines the microstructure of these venues to develop insight into order-processing costs, inventory costs, and the costs arising from information asymmetry.