Garleanu, Nicolae Bogdan; Pedersen, Lasse Heje; … - C.E.P.R. Discussion Papers - 2005
show that demand-pressure effects contribute to well-known option-pricing puzzles. Indeed, time-series tests show that … 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 …