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Price Discovery for Options

Author

Listed:
  • Semyon Malamud

    (Ecole Polytechnique Federale de Lausanne; Centre for Economic Policy Research (CEPR); Swiss Finance Institute)

  • Michael Tseng

    (University of Central Florida)

  • Yuan Zhang

    (Ecole Polytechnique Fédérale de Lausanne)

Abstract

We consider a market where traders have asymmetric information regarding the distribution of asset return and study price discovery of derivatives. The informed trader has private information regarding arbitrary higher moments of asset return, such as volatility or skewness, and exploits her private information by trading a complete menu of options. The equilibrium trading strategies of the informed agent in our model reflect those used by traders in the market when trying to exploit higher order moment information, such as the volatility straddle.

Suggested Citation

  • Semyon Malamud & Michael Tseng & Yuan Zhang, 2020. "Price Discovery for Options," Swiss Finance Institute Research Paper Series 20-66, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2066
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    More about this item

    Keywords

    Options; Price Discovery; Volatility Straddle;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

    NEP fields

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