Cournot Competition, Financial Option Markets, and Efficiency

Willems, Bert
(2005) , 26 pages

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Allaz and Vila (1993) show that the existence of futures markets increases the efficiency of markets in a Cournot setting. This paper looks at the efficiency effect of financial options in a similar framework. It shows that the existence of financial options also makes markets more efficient; though to a smaller extent than futures. This is particularly relevant for markets with market power and costly storage, like electricity markets.
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Willems, B. (2005). Cournot Competition, Financial Option Markets, and Efficiency (Center for the Study of Energy Markets WP139). https://hdl.handle.net/2078.5/256013