The Effect of Market Sentiment and Information Asymmetry on Option Pricing

Zghal, I., Hamad, S.B., Eleuch, H. and Nobanee, H., 2020. The effect of market sentiment and information asymmetry on option pricing. The North American Journal of Economics and Finance, 54, November, p.101235.

32 Pages Posted: 12 Jan 2021

See all articles by Imen Zghal

Imen Zghal

University of Sfax

Salah Ben Hamad

University of Sfax

Hichem Eleuch

Abu Dhabi University

Haitham Nobanee

Abu Dhabi University; University of Oxford; University of Liverpool

Date Written: November 5, 2020

Abstract

This work addresses the impact of imperfections, such as information asymmetry and market sentiment, on the performance of option pricing models. More precisely, this work compares the option pricing model of Black and Scholes and the same model in the presence of imperfections. This study is based on S&P 500 options that cover the period between 17/03/2000 and 14/06/2013. The achieved results show that, in general, in the presence of imperfections, the model is more effective than the Black and Scholes model. This research appears to be promising for the incorporation of imperfections into the assessment of options.

Keywords: option pricing, market imperfections, information asymmetry, market sentiment, put-call parity

JEL Classification: G13, G14

Suggested Citation

Zghal, Imen and Ben Hamad, Salah and Eleuch, Hichem and Nobanee, Haitham, The Effect of Market Sentiment and Information Asymmetry on Option Pricing (November 5, 2020). Zghal, I., Hamad, S.B., Eleuch, H. and Nobanee, H., 2020. The effect of market sentiment and information asymmetry on option pricing. The North American Journal of Economics and Finance, 54, November, p.101235., Available at SSRN: https://ssrn.com/abstract=3725455

Imen Zghal

University of Sfax ( email )

Route de l'aƩroport km 0.5
Sfax, 3029
Tunisia

Salah Ben Hamad

University of Sfax ( email )

Route de l'aƩroport km 0.5
Sfax, 3029
Tunisia

Hichem Eleuch

Abu Dhabi University ( email )

Abu Dhabi University
AlAin Campus
AlAin, 1970
United Arab Emirates

Haitham Nobanee (Contact Author)

Abu Dhabi University ( email )

Abu Dhabi
United Arab Emirates

University of Oxford ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

University of Liverpool ( email )

Chatham Street
Liverpool, L69 7ZA
United Kingdom

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