Flexibly priced options: a new mechanism for sequential auction markets with complementary goods

In this work, we propose a novel option pricing mechanism for reducing the exposure problem encountered by bidders with complementary valuations when participating in sequential, second-price auction markets. In our mechanism, both the option and the exercise price are determined dynamically, by the bids received in each auction. We show that our flexible options model can achieve better market allocation efficien y, at an only marginal cost to seller revenues compared to existing state of the art option pricing models.