Atmaz, A and Basak, S (2019) Option prices and costly short-selling. Journal of Financial Economics, 134 (1). pp. 1-28. ISSN 0304-405X
Abstract
Much empirical evidence shows that stock short-selling costs and bans have significant effects on option prices. We reconcile these findings by providing a dynamic analysis of option prices with costly short-selling and option marketmakers. We obtain simple, closed-form, unique option bid and ask prices that represent option marketmakers’ expected hedging costs, and are weighted-averages of well-known benchmark prices (Black-Scholes, Heston). Our analysis delivers rich implications that support the empirical evidence on the effects of short-selling costs and bans on option prices, as well as uncovering several novel predictions. We also apply our methodology to corporate bonds, which have option-like payoffs.
More Details
Item Type: | Article |
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Subject Areas: | Finance |
Additional Information: |
© 2019 Elsevier. This manuscript version is made available under the CC-BY-NC-ND 4.0 licence https://creativecommons.org/licenses/by-nc-nd/4.0 |
Date Deposited: | 13 Aug 2018 11:28 |
Date of first compliant deposit: | 11 Feb 2021 |
Subjects: | Option markets |
Last Modified: | 09 Oct 2024 00:41 |
URI: | https://lbsresearch.london.edu/id/eprint/999 |