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Option Prices and Disclosure: Theory and Measurement

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  • Smith, Kevin

    (Stanford University Graduate School of Business)

Abstract

In this paper, I develop an option-pricing model that formally incorporates a disclosure event. Using the model, I first theoretically examine how two properties of the disclosure--its overall informativeness and its informativeness given good relative to bad news--influence the impact that it has on option prices around its release. I then show that, by jointly examining the prices of options with different strikes, a researcher can measure the properties of a single disclosure event, an impossible task using equity prices alone. Finally, I develop and analyze methods of performing this measurement task.

Suggested Citation

  • Smith, Kevin, 2018. "Option Prices and Disclosure: Theory and Measurement," Research Papers 3683, Stanford University, Graduate School of Business.
    • Handle: RePEc:ecl:stabus:3683
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