Properties of bid and ask reservation prices in the rank-dependent expected utility model

Bid and ask reservation prices, posted by market makers on price-driven fin ancial markets, are studied in the framework of the rank-dependent expected utility model. We study the inventory effect and prove that bid task) pric es are increasing and concave (convex) functions of the quantity to be boug ht (sold). We analyze general properties of the bid-ask spread and specify them more precisely in the context of the dual theory of Yaari. (C) 2000 El sevier Science S.A. All rights reserved.