This study provides a liquidity-supply side model of options markets for illustrating how options pricing uncertainty affects moment risk premia. The model is based on micro-structure theory such that a representative market maker dynamically replicates options prices, hedges risky positions,...

This study provides a liquidity-supply side model of options markets for illustrating how options pricing uncertainty affects moment risk premia. The model is based on micro-structure theory such that a representative market maker dynamically replicates options prices, hedges risky positions,...

We investigate the effects of return jumps on option bid-ask spreads measured in implied volatility. To explain bid-ask spread quoting behavior, we construct a general model with market makers trading in an incomplete market in which a Bernoulli-type jump could occur. Following a numerical...