Detecting Abnormal Trading Activities in Option Markets

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

Marc Chesney

University of Zurich - Swiss Banking Institute (ISB); Ecole Polytechnique Fédérale de Lausanne - Ecole Polytechnique Fédérale de Lausanne

Remo Crameri

University of Zurich - Swiss Banking Institute (ISB)

Loriano Mancini

Ecole Polytechnique Fédérale de Lausanne; Ecole Polytechnique Fédérale de Lausanne - Ecole Polytechnique Fédérale de Lausanne

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

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

Marc Chesney

University of Zurich - Swiss Banking Institute (ISB) ( email )

Plattenstrasse 14
CH-8032 Zurich, Zurich 8032
Switzerland

Ecole Polytechnique Fédérale de Lausanne - Ecole Polytechnique Fédérale de Lausanne ( email )

c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland

Remo Crameri (Contact Author)

University of Zurich - Swiss Banking Institute (ISB) ( email )

Plattenstrasse 14
CH-8032 Zurich, Zurich 8032
Switzerland
+41 44 634 45 83 (Phone)

Loriano Mancini

Ecole Polytechnique Fédérale de Lausanne ( email )

Quartier UNIL-Dorigny
Bâtiment Extranef
1015 Lausanne, CH-1015
Switzerland

HOME PAGE: http://sfi.epfl.ch/mancini.html

Ecole Polytechnique Fédérale de Lausanne - Ecole Polytechnique Fédérale de Lausanne ( email )

c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland

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