Investigación
calendar_month Publicación: 01/06/2022
Price impact versus bid–ask spreads in the index option market
Autor: Andreas Kaeck, Vincent Van Kervel, Norman Seeger
Abstract
We 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.
Fuente: Journal of Financial Markets
