The Trade-Off Between Liquidity and Precision of Position in Option Contracts
AbstractMore liquid financial contracts are claimed to draw trading volume from contracts for which they are close substitutes. We provide the first analysis of how trading volume across existing financial contracts is affected by changes in the factors that govern the degree to which they are substitutes. Using data on DAX options with different strike prices, we identify these factors and their impact on the distribution of trades across contracts. The results are relevant for exchange design since they help gauge when options with different strike prices are good (bad) substitutes and the strike price grid should be coarse (fine).
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Bibliographic InfoArticle provided by Review of Applied Economics in its journal Review of Applied Economics.
Volume (Year): 3 (2007)
Issue (Month): 1-2 ()
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Web page: http://www.lincoln.ac.nz/story11874.html
Clustering; Exchange Design; Options; Risk and Uncertainty; G10; G20; L15;
Find related papers by JEL classification:
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- G20 - Financial Economics - - Financial Institutions and Services - - - General
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Sohnke M. Bartram & Frank R. Fehle, 2003. "Alternative Market Structures for Derivatives," Finance 0311007, EconWPA, revised 12 Dec 2003.
- Sohnke M. Bartram & Gregory W. Brown & Frank R. Fehle, 2003.
"International Evidence on Financial Derivatives Usage,"
0307003, EconWPA, revised 24 Jul 2003.
- Söhnke M. Bartram & Gregory W. Brown & Frank R. Fehle, 2009. "International Evidence on Financial Derivatives Usage," Financial Management, Financial Management Association International, vol. 38(1), pages 185-206, 03.
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