40 Pages Posted: 21 Nov 2006 Last revised: 27 Oct 2010
Date Written: December 1, 2006
This study focuses on innovations in order execution processes in competitive option markets. More specifically, it examines the impact of new competition arising from the Price Improvement Process introduced by the Boston Options Exchange on options spreads and the quality of order execution. Using an original data set, the paper shows that the marginal price improvement averages 1.49% of the option price quoted immediately before the transaction, and that this improvement varies according to order size and market liquidity. Moreover, price effects appear to be temporary as quoted spreads immediately after PIP related transactions revert to their previous higher level.
Keywords: market microstructure, options, price improvement process
JEL Classification: G14, C23
Suggested Citation: Suggested Citation
Khoury, Nabil and Perrakis, Stylianos and Savor, Marko, Price Improvement and Order Execution Quality on the Boston Options Exchange (December 1, 2006). Available at SSRN: https://ssrn.com/abstract=946110 or http://dx.doi.org/10.2139/ssrn.946110