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Bid and Ask Prices Tailored to Traders' Risk Aversion and Gain Propension: a Normative Approach

Marta Cardin, Bennett Eisenberg, Luisa Tibiletti

Pages - 294 - 306 | Revised - 15-11-2012 | Published - 31-12-2012

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KEYWORDS

Extended Gini Index, Bid and Ask prices, Pessimism and Optimism indices

ABSTRACT

Risky asset bid and ask prices “tailored” to the risk-aversion and the gain-propension of the traders are set up. They are calculated through the principle of the Extended Gini premium, a standard method used in non-life insurance. Explicit formulae for the most common stochastic distributions of risky returns, are calculated. Sufficient and necessary conditions for successful trading are also discussed.

1 | Cardin, M., Eisenberg, B., & Tibiletti, L. (2013). Bid pricing in online auctions with “Buy-it-Now” option. Applied Mathematical Sciences, 7(50), 2489-2500. |

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Dr. Marta Cardin

Department of Economics University CĂ Foscari of Venice - Italy

Dr. Bennett Eisenberg

Department of Mathematics University Bethlehem - United States of America

Dr. Luisa Tibiletti

Department of Management University of Torino - Italy

luisa.tibiletti@unito.it