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Modeling Information Linkages in the Stock and Options Markets

Ho, Kin-Yip; Zheng, L; Zhang, Z Y

Description

When markets are assumed to be complete, option trading should not contain new information for market participants, as options derive their prices from the underlying stocks. However, if markets are incomplete, then this unidirectional relationship may not be true, because informed traders may prefer to trade options instead of the underlying stocks for several reasons: one, option trading involves lower transaction costs and higher financial leverage; and two, investors who have private...[Show more]

CollectionsANU Research Publications
Date published: 2011
Type: Conference paper
URI: http://hdl.handle.net/1885/25842
Source: Proceedings of MODSIM 2011 International Congress on Modelling and Simulation

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