The Trade-Off Between Liquidity and Precision of Position in Option Contracts
More 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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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.:
- Söhnke M. Bartram & Gregory W. Brown & Frank R. Fehle, 2009.
"International Evidence on Financial Derivatives Usage,"
Financial Management Association International, vol. 38(1), pages 185-206, 03.
- Sohnke M. Bartram & Gregory W. Brown & Frank R. Fehle, 2003. "International Evidence on Financial Derivatives Usage," Finance 0307003, EconWPA, revised 24 Jul 2003.
- Sohnke M. Bartram & Frank R. Fehle, 2003. "Alternative Market Structures for Derivatives," Finance 0311007, EconWPA, revised 12 Dec 2003. Full references (including those not matched with items on IDEAS)
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