© 2007

Parimutuel Applications in Finance

New Markets for New Risks

  • Authors

Part of the Finance and Capital Markets Series book series (FCMS)

Table of contents

  1. Front Matter
    Pages i-xxvii
  2. Introduction to Parimutuel Markets

    1. Front Matter
      Pages 1-1
    2. Ken Baron, Jeffrey Lange
      Pages 3-10
    3. Ken Baron, Jeffrey Lange
      Pages 11-32
    4. Ken Baron, Jeffrey Lange
      Pages 33-48
    5. Ken Baron, Jeffrey Lange
      Pages 49-73
  3. The Mathematics of Parimutuel Derivatives Auctions

    1. Front Matter
      Pages 75-75
    2. Ken Baron, Jeffrey Lange
      Pages 77-99
    3. Ken Baron, Jeffrey Lange
      Pages 100-134
    4. Ken Baron, Jeffrey Lange
      Pages 135-170
    5. Ken Baron, Jeffrey Lange
      Pages 171-203
  4. Back Matter
    Pages 232-278

About this book


Financial intermediaries typically offer derivatives to their customers only when they can hedge the exposures from these transactions. Baron and Lange show that parimutuel auctions can be used by financial intermediaries to offer derivatives without exposing themselves to risk.


derivatives finance mathematics

About the authors

KEN BARON is currently in the Quantitative Strategies Group at Citadel Investment Group, an investment management company. Formerly, he was the Director of Research at Longitude, Inc. He earned a PhD in Statistics from Stanford and a BA in Mathematics from the University of Chicago. Previously, Baron held posts at Moore Capital, where he was the Director of Quantitative Research, and CSFB, where he was a Director in Global Foreign Exchange.

JEFFREY LANGE is currently a Managing Director at Guggenheim Partners, an investment management company in New York. Lange co-founded Longitude and was a former director of Longitude, Inc. He earned undergraduate and graduate degrees in Engineering from Stanford University, earned his law degree from Yale, and did his doctoral work in Risk and Insurance at the Wharton School. Before becoming a practitioner in the financial markets, Lange was on the faculty at the University of Pennsylvania. His previously published research covers law and economics and the term structure of interest rates.

Bibliographic information


'This is the most exciting story of financial innovation ever told by the innovators themselves. Baron and Lange designed an exciting new method for the simultaneous auctioning of a family of derivative securities whose payoffs depend on the future outcome of an economic variable of interest to hedgers and speculators. Their insight was that a parimutuel format would conserve liquidity across the different derivatives, rather than split it among them. Then they developed the market as a business, and wrote the book! This is financial engineering at its best, both colorful and rigorous. I highly recommend it to any student of derivative securities or financial market design. It will be a classic for years to come.' - Darrell Duffie, the James I. Miller Professor of Finance at the Graduate School of Business, Stanford University.

'The parimutuel concept is an exciting one that the world is only just beginning to appreciate. This book is the definitive treatise on this technology, as it is emerging today, and as it will be developed in the future. It is a book to be studied over future years as markets proliferate and become more and more important in our lives.' - Extract from the forward by Professor Robert Shiller.