An Equilibrium-Based Model Of Stock-Pinning
AbstractWe consider a model of the economy that splits investors into two groups. One group (the reference traders) trades an underlying asset according to the difference in realized returns between that asset and some evolving consensus estimate of those returns; the other group (hedgers) hedge options, namely straddles, on the underlying asset. We consider the cases when hedgers are long the straddle and when the hedgers are short the straddle. We numerically simulate the terminal distribution of the underlying asset price and find that hedgers that are long the straddle tend to push the underlying toward the strike, while hedgers that are short the straddle cause the underlying security to have a bimodal terminal probability distribution with a local minimum at the strike.
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Bibliographic InfoArticle provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Journal of Theoretical and Applied Finance.
Volume (Year): 10 (2007)
Issue (Month): 03 ()
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Web page: http://www.worldscinet.com/ijtaf/ijtaf.shtml
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- Golez, Benjamin & Jackwerth, Jens Carsten, 2012.
"Pinning in the S&P 500 futures,"
Journal of Financial Economics,
Elsevier, vol. 106(3), pages 566-585.
- Benjamin Golez & Jens Carsten Jackwerth, 2010. "Pinning in the S&P 500 Futures," Working Paper Series of the Department of Economics, University of Konstanz 2010-12, Department of Economics, University of Konstanz.
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