Download This PaperDetecting Abnormal Trading Activities in Option Markets
36 Pages Posted: 13 Jan 2010 Last revised: 23 Jan 2015
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
Swiss Finance Institute ( email )
c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland
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