Abstract
A parimutuel market microstructure for contingent claims trading is proposed and analyzed. A parimutuel microstructure is a call auction where relative equilibrium prices of contingent claims are endogenously determined using a specific mechanism. We propose a market microstructure incorporating parimutuel principles which provides for notional derivatives transactions, limit orders, and bundling of contingent claims across states. This microstructure will be used by Longitude Inc.'s clients to transact derivatives on economic statistics, weather, insurance losses and other types of risks. JPMorgan Chase and Deutsche Bank are some of the financial institutions that will be holding parimutuel auctions in early 2002.
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