The DOI matches its Crossref record; 2 of the 2 references it cites were found in a registry or an index.
Demand-Based Option Pricing
Open accessAbstract
We model the demand-pressure effect on prices when options cannot be perfectly hedged.The model shows that demand pressure in one option contract increases its price by an amount proportional to the variance of the unhedgeable part of the option.Similarly, the demand pressure increases the price of any other option by an amount proportional to the covariance of their unhedgeable parts.Empirically, we identify aggregate positions of dealers and end users using a unique dataset, and show that demand-pressure effects help explain well-known option-pricing puzzles.First, end users are net long index options, especially out-of-money puts, which helps explain their apparent expensiveness and the smirk.Second, demand patterns help explain the prices of single-stock options.
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Cites
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Cited by
Market Liquidity and Funding Liquidity
Brunnermeier, M. K., & Pedersen, L. H. (2009) · Review of Financial Studies · doi:10.1093/rfs/hhn098 · Cited by 4,835
Self-citationAmihud, Y., Mendelson, H., & Pedersen, L. H. (2005) · Foundations and Trends® in Finance · doi:10.1561/0500000003 · Cited by 820
Self-citationWhat Does the Individual Option Volatility Smirk Tell Us About Future Equity Returns?
Xing, Y., Zhang, X., & Zhao, R. (2010) · Journal of Financial and Quantitative Analysis · doi:10.1017/s0022109010000220 · Cited by 710
Margin-based Asset Pricing and Deviations from the Law of One Price
Gârleanu, N., & Pedersen, L. H. (2011) · Review of Financial Studies · doi:10.1093/rfs/hhr027 · Cited by 649
Self-citationFinancial Reporting Opacity and Expected Crash Risk: Evidence from Implied Volatility Smirks
Kim, J., & Zhang, L. (2014) · Contemporary Accounting Research · doi:10.1111/1911-3846.12048 · Cited by 486
Metadata
- Authors
- Gârleanu, N., Pedersen, L. H., & Poteshman, A. M.
- Venue
- Review of Financial Studies
- Publisher
- Oxford University Press (OUP)
- Published
- 2009-02-25
- Volume
- 22
- Issue
- 10
- Pages
- 4259-4299
- ISSN
- 0893-9454 (ISSN-L)
- 1465-7368
- OpenAlex
- W2890453835
- Cited by
- 884
- References
- 2
- FWCI
- 31.81
- Type
- journal article
- Language
- en
- Open access
- bronze
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Bibliographic data: Semantic Scholar, OpenAlex, Crossref.
Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
