Jumps in Option Prices and Their Determinants: Real-Time Evidence from the E-Mini S&P 500 Option Market

76 Pages Posted: 17 Dec 2013 Last revised: 23 Jun 2014

See all articles by George Kapetanios

George Kapetanios

King's College, London

Michael Neumann

affiliation not provided to SSRN

George S. Skiadopoulos

University of Piraeus; Queen Mary, University of London, School of Economics and Finance

Date Written: June 23, 2014

Abstract

We study the real-time characteristics and drivers of jumps in option prices. To this end, we employ high frequency data from the 24-hour E-mini S&P 500 options market. We find that option prices do not jump simultaneously across strikes and maturities and are uncorrelated with jumps in the underlying futures price. 14% to 28% of detected option price jumps occur around scheduled news releases. However, it is illiquidity rather than the news content that drives jumps. Evidence suggests that option traders increase bid-ask spreads to account for trading against investors who are skilled processors of public releases.

Keywords: Co-Jumps, Jumps, Informed traders, Liquidity, Option Markets, Scheduled News Announcements

JEL Classification: C58, G10, G12, G13

Suggested Citation

Kapetanios, George and Neumann, Michael and Skiadopoulos, George, Jumps in Option Prices and Their Determinants: Real-Time Evidence from the E-Mini S&P 500 Option Market (June 23, 2014). Available at SSRN: https://ssrn.com/abstract=2368385 or http://dx.doi.org/10.2139/ssrn.2368385

George Kapetanios

King's College, London ( email )

30 Aldwych
London, WC2B 4BG
United Kingdom
+44 20 78484951 (Phone)

Michael Neumann (Contact Author)

affiliation not provided to SSRN

George Skiadopoulos

University of Piraeus ( email )

80 Karaoli & Dimitriou Str.
18534 Piraeus, 185 34 -GR
Greece

HOME PAGE: http://web.xrh.unipi.gr/faculty/gskiadopoulos/

Queen Mary, University of London, School of Economics and Finance

Lincoln's Inn Fields
Mile End Rd.
London, E1 4NS
United Kingdom

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