36 Pages Posted: 13 Jan 2010 Last revised: 23 Jan 2015
Date Written: January 22, 2015
We develop an econometric method to detect "abnormal trades" in option markets, i.e., trades which are not driven by liquidity motives. Abnormal trades are characterized by unusually large increments in open interest, trading volume, and option returns, and are not used for option hedging purposes. We use a multiple hypothesis testing technique to control for false discoveries in abnormal trades. We apply the method to 9.6 million of daily option prices.
Keywords: Options Trades, Open Interest, False Discovery Rate, Massive dataset
JEL Classification: G12, G13, G17
Suggested Citation: Suggested Citation
Chesney, Marc and Crameri, Remo and Mancini, Loriano, Detecting Abnormal Trading Activities in Option Markets (January 22, 2015). Swiss Finance Institute Research Paper No. 11-42. Available at SSRN: https://ssrn.com/abstract=1522157 or http://dx.doi.org/10.2139/ssrn.1522157