Overview and details of the sessions of this conference. Please select a date or room to show only sessions at that day or location.
Please select "Show Presentations" and "List View" or a single session for detailed view (with abstracts, discussants, downloads). PDF downloads are accessible to registered participants only (after Login).
We compare all commonly employed transaction cost measures in options markets. Standard measures do not clearly identify the financial crisis, suggest that low-volume ITM options are much more liquid than high-volume ATM options, and are highly sensitive to small moneyness variations. We propose normalizing the relative bid-ask spread by the option elasticity, effectively capturing the direct cost of implementing the replicating portfolio and the option's economic exposure. This elasticity-adjusted spread outperforms alternative measures. It varies with market stress and equity market liquidity and shows high cross-sectional correlations with underlying liquidity, market capitalization, and volatility. It is lowest for ATM and ITM options and robust to small variations in moneyness. Approximation of our measure based on daily data performs similarly well.
10:00am - 10:30am
Good and bad variance premia and expected carbon returns
Nicole Branger, Jan Harren, Stefan Menze
University of Münster, Germany
Discussant: Alexander Götz (Universität Stuttgart)
We examine the variance risk premium (VRP) in carbon markets. On average, the VRP is positive but turns negative during periods of market stress, such as the COVID-19 pandemic and the Russian invasion of Ukraine. We decompose the VRP into upside (“good”) and downside (“bad”) components. We find the VRP to predict short-term carbon returns on specific carbon events. Importantly, the predictive power for future carbon returns is entirely driven by the downside VRP, indicating that investors are particularly sensitive to jump risks linked to falling carbon prices. This sensitivity likely reflects broader economic concerns, as declining carbon prices typically indicate reduced investor demand driven by lower emissions, diminished industrial activity, and a weakening economy.
10:30am - 11:00am
How do investors trade option anomalies?
Fabian Hollstein1, Chardin Wese Simen2
1Saarland University, Germany; 2University of Liverpool, UK
Discussant: Stefan Menze (University of Münster)
We examine the positioning of different types of traders with respect to option return anomalies. Anomaly demand varies widely across variables and between call and put options. With their anomaly exposures, customers are overwhelmingly on the wrong side of anomalies. Market makers are the main beneficiaries. Preferred habitats explain the exposures to multiple anomalies, while end-user demand also emerges as a likely driver of several anomalies. Aggregate end-user trading patterns suggest that they mainly seek outright rather than delta-hedged option exposure. Finally, market makers appear to dynamically adjust prices based on firm trader demand, but not customer demand.
