Price impact versus bid-ask spreads in the index option market

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dc.contributor.authorKaeck, Andreas
dc.contributor.authorvan Kervel, Vincent
dc.contributor.authorSeeger, Norman J.
dc.date.accessioned2025-01-20T21:03:55Z
dc.date.available2025-01-20T21:03:55Z
dc.date.issued2022
dc.description.abstractWe investigate the puzzle of why bid-ask spreads of options are so large by focussing on the price impact component of the spread. We propose a structural vector autoregressive model for trades in the option market to analyze whether they move the underlying price and/or the underlying's volatility. Our model captures cross-option strategies by pooling order flows across contracts after a decomposition into exposure to the underlying asset and its volatility. While our estimates confirm that S&P500 option trades indeed significantly move the underlying and the volatility, the economic magnitudes are very small. Hence, large bid-ask spreads of options remain a puzzle.
dc.description.funderFondecyt Iniciacion, Chile
dc.fuente.origenWOS
dc.identifier.doi10.1016/j.finmar.2021.100675
dc.identifier.eissn1878-576X
dc.identifier.issn1386-4181
dc.identifier.urihttps://doi.org/10.1016/j.finmar.2021.100675
dc.identifier.urihttps://repositorio.uc.cl/handle/11534/93193
dc.identifier.wosidWOS:000831284000004
dc.language.isoen
dc.revistaJournal of financial markets
dc.rightsacceso restringido
dc.subjectOptions
dc.subjectLiquidity
dc.subjectPrice impact
dc.subjectInformed trading
dc.subject.ods08 Decent Work and Economic Growth
dc.subject.odspa08 Trabajo decente y crecimiento económico
dc.titlePrice impact versus bid-ask spreads in the index option market
dc.typeartículo
dc.volumen59
sipa.indexWOS
sipa.trazabilidadWOS;2025-01-12
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