On the demand pressure hypothesis in option markets: the case of a redundant option
Gârleanu et al. (RFS 2009) show that a demand pressure phenomenon exists in option markets due to limit to arbitrage. They assert that if arbitrage is perfect, option demand does not impact option price. In this note we show that there is a positive relation between the demand for a redundant option and the option price, which is related to the beliefs of constrained investors regarding future payoffs.
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- Ernest N. Biktimirov & Arnold R. Cowan & Bradford D. Jordan, 2004. "Do Demand Curves for Small Stocks Slope Down?," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 27(2), pages 161-178.
- Nicolae Garleanu & Lasse Heje Pedersen & Allen M. Poteshman, 2009.
"Demand-Based Option Pricing,"
Review of Financial Studies,
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- Shleifer, Andrei, 1986. " Do Demand Curves for Stocks Slope Down?," Journal of Finance, American Finance Association, vol. 41(3), pages 579-590, July. Full references (including those not matched with items on IDEAS)
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