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In illiquid markets, option traders may have an incentive to increase their portfolio value by using their impact on the dynamics of the underlying. We provide a mathematical framework within which to value derivatives under market impact in a multi-player framework by introducing strategic...
Persistent link: https://www.econbiz.de/10003952859
In this paper an extension of the well-known binomial approach to option pricing is presented. The classical question is: What is the price of an option on the risky asset? The traditional answer is obtained with the help of a replicating portfolio by ruling out arbitrage. Instead a two-person...
Persistent link: https://www.econbiz.de/10012264975
In case of multiple creditors a coordination problem can arise when the borrowingfirm runs into financial distress. Even if the project's value at maturity is enoughto pay all creditors in full, some creditors may be tempted to foreclose on theirloans. We develop a model of creditor coordination...
Persistent link: https://www.econbiz.de/10003636427
Persistent link: https://www.econbiz.de/10014519918
This study examines the role of differences in firms' propensity to meet earnings expectations in explaining why firms with high analyst forecast dispersion experience relatively low future stock returns. We first demonstrate that the negative relation between dispersion and returns is...
Persistent link: https://www.econbiz.de/10013250530
This paper discusses a selected literature on continuous-time option games models, providing new insights and extensions. The paper analyzes both symmetrical and asymmetrical duopoly under uncertainty, including issues like preemption, non-binding collusion, perfect-Nash equilibriums,...
Persistent link: https://www.econbiz.de/10013004478
We analyze how public disclosure of informed investors' trades results in manipulation, which in turn affects coordination and competition in a duopolistic setting. We show that disclosure always increases market efficiency but its effect on informed investors' profit is ambiguous. When informed...
Persistent link: https://www.econbiz.de/10013006709
This paper studies equilibrium uniqueness in multi-asset noisy rational expectations economies with asymmetric information, an extension of Grossman and Stiglitz (1980). We show the existence of a linear equilibrium, and prove its uniqueness among equilibria with any continuous price function....
Persistent link: https://www.econbiz.de/10013019262
Algorithmic trading strategies for execution often focus on the individual agent who is liquidating/acquiring shares. When generalized to multiple agents, the resulting stochastic game is notoriously difficult to solve in closed-form. Here, we circumvent the difficulties by investigating a...
Persistent link: https://www.econbiz.de/10012904406
We study a set of trading restrictions imposed by Robinhood and other retail-oriented broker-dealers in 38 stocks, including GameStop. Restrictions limit equity and/or options positions. Stock price effects are large, with CARs averaging -13.54% within two hours after a stock’s first trading...
Persistent link: https://www.econbiz.de/10013221131