Abstract

http://ssrn.com/abstract=1784868
 
 

References (65)



 
 

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Illiquidity Premia in the Equity Options Market


Peter Christoffersen


University of Toronto - Rotman School of Management; Copenhagen Business School; University of Aarhus - CREATES

Ruslan Goyenko


McGill University - Desautels Faculty of Management

Kris Jacobs


University of Houston - C.T. Bauer College of Business

Mehdi Karoui


McGill University

October 13, 2015


Abstract:     
Standard option valuation models leave no room for option illiquidity premia. Yet we find that the risk-adjusted return spread for illiquid over liquid equity call options is 22 bps per day for at-the-money calls and 42 bps overall. These illiquidity premiums are computed using state-of-the-art option illiquidity measures for a large panel of US equities, and are robust to different empirical implementations. Results for puts are not economically or statistically significant. These findings are consistent with evidence that market makers in the equity options market hold large and risky net long positions in calls but much smaller net positions in puts.

Number of Pages in PDF File: 73

Keywords: Illiquidity; equity options; cross-section; delta-hedged option returns

JEL Classification: G12


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Date posted: March 15, 2011 ; Last revised: October 17, 2015

Suggested Citation

Christoffersen, Peter and Goyenko, Ruslan and Jacobs, Kris and Karoui, Mehdi, Illiquidity Premia in the Equity Options Market (October 13, 2015). Available at SSRN: http://ssrn.com/abstract=1784868 or http://dx.doi.org/10.2139/ssrn.1784868

Contact Information

Peter Christoffersen
University of Toronto - Rotman School of Management ( email )
105 St. George Street
Toronto, Ontario M5S 3E6 M5P 3C4
Canada
416-946-5511 (Phone)
HOME PAGE: http://www.christoffersen.com

Copenhagen Business School
Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark
University of Aarhus - CREATES
School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark
Ruslan Goyenko (Contact Author)
McGill University - Desautels Faculty of Management ( email )
1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada
Kris Jacobs
University of Houston - C.T. Bauer College of Business ( email )
Houston, TX 77204-6021
United States
Mehdi Karoui
McGill University ( email )
1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada
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