Detecting Abnormal Trading Activities in Option Markets

Chesney, Marc; Crameri, Remo; Mancini, Loriano

doi:10.2139/ssrn.1522157

Detecting Abnormal Trading Activities in Option Markets

Swiss Finance Institute Research Paper No. 11-42

36 Pages Posted: 13 Jan 2010 Last revised: 23 Jan 2015

Marc Chesney

University of Zurich - Swiss Banking Institute (ISB)

Remo Crameri

University of Zurich - Swiss Banking Institute (ISB)

Loriano Mancini

USI Lugano - Institute of Finance; Swiss Finance Institute

Date Written: January 22, 2015

Abstract

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