Demand-Based Option Pricing
We model the demand-pressure effect on prices when options cannot be perfectly hedged. The model shows that demand pressure in one option contract increases its price by an amount proportional to the variance of the unhedgeable part of the option. Similarly, the demand pressure increases the price of any other option by an amount proportional to the covariance of their unhedgeable parts. Empirically, we identify aggregate positions of dealers and end users using a unique dataset, and show that demand-pressure effects help explain well-known option-pricing puzzles. First, end users are net long index options, especially out-of-money puts, which helps explain their apparent expensiveness and the smirk. Second, demand patterns help explain the prices of single-stock options
Year of publication: |
[2010]
|
---|---|
Authors: | Garleanu, Nicolae |
Other Persons: | Pedersen, Lasse Heje (contributor) ; Poteshman, Allen M. (contributor) |
Publisher: |
[2010]: [S.l.] : SSRN |
Subject: | Optionspreistheorie | Option pricing theory | Optionsgeschäft | Option trading | Hedging | Nachfrage | Demand | Finanzmarkt | Financial market |
Saved in:
freely available
Extent: | 1 Online-Ressource (49 p) |
---|---|
Series: | NBER Working Paper ; No. w11843 |
Type of publication: | Book / Working Paper |
Language: | English |
Notes: | Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments December 2005 erstellt |
Source: | ECONIS - Online Catalogue of the ZBW |
Persistent link: https://www.econbiz.de/10012761687