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Causality between arbitrage and liquidity in platinum futures

Iwatsubo, Kentaro; Watkins, Clinton - In: Journal of Risk and Financial Management 15 (2022) 12, pp. 1-17

Arbitrage and liquidity are interrelated. Liquidity facilitates arbitrageurs' trading on deviations from the law of one … price. However, whether arbitrage opportunity leads to an increase or decrease in liquidity depends on the cause of the … deviation. A demand shock leads to greater liquidity, while asymmetric information is toxic to liquidity. We examine how …

Persistent link: https://www.econbiz.de/10014332749

Option Introduction and Liquidity Changes in the OTC/NASDAQ Equity Market

Fortin, Rich; Maese, Judy - In: Journal of Small Business Finance 2 (1992) 1, pp. 39-52

This paper examines the impact of option listing in the NASDAQ equity market on the bid-ask spread of the underlying stock. We find that both the market adjusted percentage and dollar spreads decrease with option listing, which is consistent with a value enhancing impact of derivative security...

Persistent link: https://www.econbiz.de/10011310309

The Link Between Incomplete Information on the Interbank Network and Counterparty Risk

Förster, Daniel; Walther, Martin - In: Credit and Capital Markets – Kredit und Kapital 52 (2019) 2, pp. 213-227

unanticipated insolvency of one bank. Banks that cannot rule out an indirect hit react by selling assets and hoarding liquidity …. While this potentially lowers illiquidity risks, it depresses market liquidity and prices. This leads to a negative … externality by which sales to acquire liquidity simultaneously lead to lower global sale proceeds and thus to a greater number of …

Persistent link: https://www.econbiz.de/10014523045

Asymptotic extrapolation of model-free implied variance: exploring structural underestimation in the VIX Index

Stahl, Philip - In: Review of Derivatives Research 25 (2022) 3, pp. 315-339

We show that the VIX Index structurally underestimates model-free implied volatility because its implementation omits extrapolation of the volatility smile in the tails. We use the asymptotic behavior of the volatility surface to construct a correction term that is model-independent and only...

Persistent link: https://www.econbiz.de/10015192461

Arbitrage-free smile construction on FX option markets using Garman-Kohlhagen deltas and implied volatilities

Muck, Matthias - In: Review of Derivatives Research 25 (2022) 3, pp. 293-314

This paper addresses arbitrage-free FX smile construction from near-term implied volatility dynamics proposed by Carr (J Financ Econ, 120(1), 1–20, 2016). The approach is directly applicable to FX option market conventions. Prices of market benchmark contracts (risk reversals and butterflies)...

Persistent link: https://www.econbiz.de/10015193597

Commodity Asian option pricing and simulation in a 4-factor model with jump clusters

Brignone, Riccardo; Gonzato, Luca; Sgarra, Carlo - In: Annals of Operations Research 336 (2023) 1, pp. 275-306

Mean reversion, stochastic volatility, convenience yield and presence of jump clustering are well documented salient features of commodity markets, where Asian options are very popular. We propose a model which takes into account all these stylized features. We first state our model under the...

Persistent link: https://www.econbiz.de/10015194326

The Term Structure of Currency Futures' Risk Premia

Bernoth, Kerstin; von Hagen, Jürgen; de Vries, Caspar - In: Journal of Money, Credit and Banking 54 (2022) 1, pp. 5-38

The use of futures instead of forwards exchange contracts completes the ma-turity spectrum of the correlation between spot yields and the premium. Wefind that the forward premium puzzle appears to be a precrisis phenomenonand is only observed for maturities longer than about 1 month....

Persistent link: https://www.econbiz.de/10013367049

Firm age and crude oil returns: Stock price sensitivity of oil-producing and consuming companies

Nishi, Hirofumi - In: Cogent Economics & Finance 8 (2020) 1, pp. 1-21

returns is negatively and significantly associated with firm age. Contrary to a common belief, firm size or stock liquidity …

Persistent link: https://www.econbiz.de/10014001327

The effect of new futures contracts on gold futures price volatility: Evidence from the Thailand futures exchange

In: Cogent Economics & Finance 8 (2020) 1, pp. 1-14

This paper studies the effect of new gold derivatives products, including Gold-D and Gold Online Futures, on the futures price volatility of existing gold futures with two contract sizes, 50 baht-weight and 10 baht-weight, using symmetric and asymmetric GARCH family models, namely: GARCH (1,1),...

Persistent link: https://www.econbiz.de/10014001472

The pricing kernel puzzle: A behavioral explanation

Siddiqi, Hammad; Quiggin, John C. - In: Cogent Economics & Finance 7 (2019) 1, pp. 1-20

We show that if sophisticated institutional managers and individual investors perceive tail-risks differently, then a new explanation for the pricing kernel puzzle emerges. We show, by example, that even a tiny difference in tail-risk perception by the two investor types can explain the pricing...

Persistent link: https://www.econbiz.de/10014001604