The Price of Options Illiquidity  

Oleh:

Brenner, Menachem ; Eldor, Rafi ; Hauser, Shmuel

Jenis: Article from Journal - ilmiah internasional
Dalam koleksi: The Journal of Finance (EBSCO) vol. 56 no. 2 (2001), page 789-805.
Topik: PRICE; liquidity; currency options; options markets; foreign exchange rates; mathematical models; international finance
Fulltext: p 789.pdf (95.0KB)

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Perpustakaan Pusat (Semanggi) Nomor Panggil: JJ88 Non-tandon: 1 (dapat dipinjam: 0) Tandon: tidak ada

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Isi artikel

One important aspect of research on the microstructure of financial markets is the effect of liquidity on financial assets. The purpose of this paper is to examine the effect of illiquidity on the value of currency options. A unique dataset is used that allows an exploration of this issue in special circumstances where options are issued by a central bank and are not traded prior to maturity. The value of these options is compared to similar options traded on the exchange. The nontradeable options are priced about 21% less than the exchange - traded options. This gap cannot be arbitraged away due to transaction costs and the risk that the exchange rate will change during the bidding process.

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