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政大機構典藏 > 商學院 > 財務管理學系 > 期刊論文 > Item 140.119/153756

Please use this identifier to cite or link to this item: https://nccur.lib.nccu.edu.tw/handle/140.119/153756

Title:	Volatility Uncertainty, Time Decay, and Option Bid-Ask Spreads in an Incomplete Market
Authors:	謝沛霖 Hsieh, Pei-Lin;Jarrow, Robert
Contributors:	財管系
Keywords:	option pricing;incomplete market;bid-ask spread;implied volatility;market microstructure;maturity effect
Date:	2019-04
Issue Date:	2024-09-11
Abstract:	This paper documents the fact that in options markets, the (percentage) implied volatility bid-ask spread increases at an increasing rate as the option’s maturity date approaches. To explain this stylized fact, this paper provides a market microstructure model for the bid-ask spread in options markets. We first construct a static equilibrium model to illustrate the aforementioned phenomenon where risk averse and competitive option market makers quote bid and ask prices to minimize their inventory risk in an incomplete market with both directional and volatility risk. We extend this model to multiperiods and show that the same phenomenon occurs there as well. Two new implications are generated: a volatility level effect and a volatility variance effect. These implications are empirically tested, and the empirical results confirm the model’s validity. Finally, we document the importance of detrending the maturity effect by showing that the detrended percentage volatility spread explains future jump intensities better than the original percentage volatility spread.
Relation:	Management Science, Vol.65, No.4, pp.1833-1854
Data Type:	article
DOI 連結:	https://doi.org/10.1287/mnsc.2017.2867
DOI:	10.1287/mnsc.2017.2867
Appears in Collections:	[財務管理學系] 期刊論文

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