Are you an EPFL student looking for a semester project?
Work with us on data science and visualisation projects, and deploy your project as an app on top of Graph Search.
Publication
Are you an EPFL student looking for a semester project?
Work with us on data science and visualisation projects, and deploy your project as an app on top of Graph Search.
We characterize the unique equilibrium in an economy populated by strategic CARA investors who trade multiple risky assets with arbitrarily distributed payoffs. We use our explicit solution to study the joint behavior of illiquidity of option contracts. Option bid-ask spreads are proportional to risk aversion and risk-neutral variances of option payoffs. Spreads may decrease in risk aversion, physical variance, open interest, and increase after earnings announcements in a result contrary to conventional wisdom. All these predictions are confirmed empirically using a large panel data set of U.S. stock options.
,
, ,