An Equilibrium-Based Model Of Stock-Pinning
We 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.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 10 (2007)
Issue (Month): 03 ()
|Contact details of provider:|| Web page: http://www.worldscinet.com/ijtaf/ijtaf.shtml|
|Order Information:|| Email: |
References listed on IDEAS
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.:
- Eckhard Platen & Martin Schweizer, 1998.
"On Feedback Effects from Hedging Derivatives,"
Wiley Blackwell, vol. 8(1), pages 67-84.
- Marco Avellaneda & Michael Lipkin, 2003. "A market-induced mechanism for stock pinning," Quantitative Finance, Taylor & Francis Journals, vol. 3(6), pages 417-425.
- Mukarram Attari & Antonio S. Mello & Martin E. Ruckes, 2005. "Arbitraging Arbitrageurs," Journal of Finance, American Finance Association, vol. 60(5), pages 2471-2511, October.
- Xiaoyan Ni, Sophie & Pearson, Neil D. & Poteshman, Allen M., 2005. "Stock price clustering on option expiration dates," Journal of Financial Economics, Elsevier, vol. 78(1), pages 49-87, October.
- Mattias Jonsson & Jussi Keppo, 2002. "Option pricing for large agents," Applied Mathematical Finance, Taylor & Francis Journals, vol. 9(4), pages 261-272.
When requesting a correction, please mention this item's handle: RePEc:wsi:ijtafx:v:10:y:2007:i:03:p:535-555. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tai Tone Lim)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.