Download or read book The Effect of Options on Information Acquisition and Asset Pricing written by Shiyang Huang and published by . This book was released on 2015 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the effect of introducing an options market on investors' incentive to collect private information in a rational expectation equilibrium model. We show that an options market has two effects on information acquisition: a negative effect, as options act as substitutes for information, and a positive effect, as informed investors have less need for options and can earn profits from selling them. When the population of informed investors is high due to low information acquisition cost, the supply for options is large, leading to low option prices. Low option prices in turn induce investors to use options instead of information to reduce risk, while informed investors earn little profits from selling options to cover their information acquisition cost. Introducing an options market thus decreases investors' incentive to acquire information, and the prices of the underlying assets become less informative, leading to lower prices and higher volatilities. A dynamic extension of this analysis shows that introducing an options market increases the price reactions to earnings announcements. However, when the information acquisition cost is high, the opposite effects arise. Further analysis shows that our results are robust for more general derivatives. These results provide a potentially unified theory to reconcile the conflicting empirical findings on the options listing of individual stocks in both the U.S. market and international markets.

Download or read book Liquidity and Asset Prices written by Yakov Amihud and published by Now Publishers Inc. This book was released on 2006 with total page 109 pages. Available in PDF, EPUB and Kindle. Book excerpt: Liquidity and Asset Prices reviews the literature that studies the relationship between liquidity and asset prices. The authors review the theoretical literature that predicts how liquidity affects a security's required return and discuss the empirical connection between the two. Liquidity and Asset Prices surveys the theory of liquidity-based asset pricing followed by the empirical evidence. The theory section proceeds from basic models with exogenous holding periods to those that incorporate additional elements of risk and endogenous holding periods. The empirical section reviews the evidence on the liquidity premium for stocks, bonds, and other financial assets.

Download or read book Essays on Information Acquisition and Asset Pricing written by Paul Marmora and published by . This book was released on 2015 with total page 88 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this dissertation, I explore different mechanisms by which information is generated in financial markets, and whether these mechanisms can account for empirical anomalies that models without information choice have difficulty explaining. In the first chapter, I survey the theoretical literature on perfectly competitive asset markets, with a particular focus on rational expectations models with endogenous information acquisition. In the second chapter, ``The Distribution of Information, the Market for Financial News, and the Cost of Capital", I present a rational expectations model with a competitive market for financial news that provides an explanation for why stocks with a higher degree of information asymmetry tend to earn higher expected returns. I demonstrate that when a small fraction of investors hold a large fraction of a firm's private information, few investors demand a copy of firm-specific news in equilibrium. As a result, each investor must incur a larger share of the fixed cost of news production to obtain a copy, which deters investors from learning more about the firm and therefore raises their required risk premium. This result hinges crucially on the ability of investors to share in the fixed cost of news production, which suggests that the financial news media plays an important role in determining how the cost of capital varies with the inequality of information across investors. In the third chapter, ``Learning About Noise" (with Oleg Rytchkov), we study theoretical implications of endogenous acquisition of non-fundamental information in financial markets. We develop a rational expectations model with heterogeneous information and multidimensional costly learning and demonstrate that i) investors specialize in information acquisition, that is, those who are endowed with high (low) quality information about fundamentals learn only about fundamentals (noise), ii) learning about fundamentals increases the asymmetry of information, whereas learning about noise decreases it, and iii) the opportunity to learn about noise unambiguously increases price informativeness.

Download or read book Asset Pricing Under Asymmetric Information written by Markus Konrad Brunnermeier and published by Oxford University Press, USA. This book was released on 2001 with total page 264 pages. Available in PDF, EPUB and Kindle. Book excerpt: The role of information is central to the academic debate on finance. This book provides a detailed, current survey of theoretical research into the effect on stock prices of the distribution of information, comparing and contrasting major models. It examines theoretical models that explain bubbles, technical analysis, and herding behavior. It also provides rational explanations for stock market crashes. Analyzing the implications of asymmetries in information is crucial in this area. This book provides a useful survey for graduate students.

Download or read book The Effect of Option Listing on Security Prices written by Kevin Frank Croskrey and published by . This book was released on 1987 with total page 108 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Empirical Asset Pricing written by Wayne Ferson and published by MIT Press. This book was released on 2019-03-12 with total page 497 pages. Available in PDF, EPUB and Kindle. Book excerpt: An introduction to the theory and methods of empirical asset pricing, integrating classical foundations with recent developments. This book offers a comprehensive advanced introduction to asset pricing, the study of models for the prices and returns of various securities. The focus is empirical, emphasizing how the models relate to the data. The book offers a uniquely integrated treatment, combining classical foundations with more recent developments in the literature and relating some of the material to applications in investment management. It covers the theory of empirical asset pricing, the main empirical methods, and a range of applied topics. The book introduces the theory of empirical asset pricing through three main paradigms: mean variance analysis, stochastic discount factors, and beta pricing models. It describes empirical methods, beginning with the generalized method of moments (GMM) and viewing other methods as special cases of GMM; offers a comprehensive review of fund performance evaluation; and presents selected applied topics, including a substantial chapter on predictability in asset markets that covers predicting the level of returns, volatility and higher moments, and predicting cross-sectional differences in returns. Other chapters cover production-based asset pricing, long-run risk models, the Campbell-Shiller approximation, the debate on covariance versus characteristics, and the relation of volatility to the cross-section of stock returns. An extensive reference section captures the current state of the field. The book is intended for use by graduate students in finance and economics; it can also serve as a reference for professionals.

Download or read book Real R D Options written by Dean Paxson and published by Elsevier. This book was released on 2002-12-05 with total page 345 pages. Available in PDF, EPUB and Kindle. Book excerpt: Real R&D options are among the earliest modelled real options, with now ten primary practical uses: general R&D planning, planning R&D in stages, evaluating test information, new product development timing, operations, abandonment, risk sharing, market funding, industry strategy and regulation. This book was partly motivated by requests to identify and develop real option models for R&D in telecommunications, petroleum technology and biotechnology. Nine new models cover information and implementation costs, analytical solutions for mean reverting, or fat tailed revenues, endogenous learning and exogenous and experiential shocks, American sequential options, and innovator advantages. Four new applications include forward start development options, exploration options, innovation with information costs, and innovator's real values with changing market share. R&D directors and researchers will find several uses for these models: general R&D planning evaluating test information new product development timing risk sharing industry strategy and regulation A practical guide to how organizations can use Real Option techniques to effectively value research and development by companies Provides a rigorous theoretical underpinning of the use of Real Option techniques Real Options applications are orientated around the economies of North America, Europe and Asia, for an international perspective

Download or read book Essays on Asset Pricing Using Information from Option Markets written by Konstantinos Gkionis and published by . This book was released on 2020 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Option Valuation with Co Integrated Asset Prices written by Jin-Chuan Duan and published by . This book was released on 2006 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates theoretical and practical aspects of options that are based upon two or more assets which are co-integrated. For this purpose, a new, discrete-time model of asset prices is developed, a model featuring both the co-integration property as well as stochastic volatilities. Using a GARCH, equilibrium-based option pricing approach, it is shown that when volatilities are deterministic the option prices do not depend on the co-integration parameters, except for the mis-specification effect as to the manner in which the volatilities are estimated. However, with stochastic volatilities the option prices explicitly depend upon the co-integration parameters. In order to better understand these results, this paper also examines a continuous-time, diffusion limit of the asset price system and empirically studies the co-integration effect using spread options based upon the Samp;P500 and the NASDAQ100. These numerical results suggest that consideration of co-integration can substantially alter the value, delta and vega of a spread option.

Download or read book Bubbles and Crashes in Experimental Asset Markets written by Stefan Palan and published by Springer Science & Business Media. This book was released on 2009-10-03 with total page 179 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book describes a laboratory experiment designed to test the causes and properties of bubbles in financial markets and explores the question whether it is possible to design markets which avoid such bubbles and crashes. In the experiment, subjects were given the opportunity to trade in a stock market modeled after the seminal work of Smith et al. (1988). To account for the increasing importance of online betting sites, subjects were also allowed to trade in a digital option market. The outcomes shed new light on how subjects form and update their expectations, placing special emphasis on the bounded rationality of investors. Various analytical bubble measures found in the literature are collected, calculated, classified and presented for the first time. The very interesting new bubble measures "Dispersion Ratio", "Overpriced Transactions" and "Underpriced Transactions" are developed, making the book an important step towards the research goal of preventing bubbles and crashes in financial markets.

Download or read book Options Markets written by John C. Cox and published by Prentice Hall. This book was released on 1985 with total page 518 pages. Available in PDF, EPUB and Kindle. Book excerpt: Includes the first published detailed description of option exchange operations, the first published treatment using only elementary mathematics and the first step-by-step procedure for implementing the Black-Scholes formula in actual trading.

Download or read book Risk adjusted Information Content in Option Prices written by Durga Prasad Panda and published by . This book was released on 2010 with total page 178 pages. Available in PDF, EPUB and Kindle. Book excerpt: There are many measures to price an option. This dissertation investigates a risk-adjusted measure to price the option with an alternative numeraire that retains the expected return of the underlying in the pricing equation. This model is consistent with the Black-Scholes model when their assumptions are imposed and is consistent with the standard capital asset pricing model. Unlike many asset pricing models that rely on historical data, we provide a forward-looking approach for extracting the ex ante return distribution parameters of the underlying from option prices. Using this framework and observing the market prices of options, we jointly extract implied return and implied volatility of the underlying assets for different days-to-maturity using a grid search method of global optima. Our approach does not use a preference structure or information about the market such as the market risk premium to estimate the expected return of the underlying asset. We find that when there are not many near-the-money traded options available our approach provides a better solution to forecast future volatility than the Black-Scholes implied volatility. Further, our results show that option prices reflect a higher expectation of stock return in the short-term, but a lower expectation of stock return in the long-term that is robust to many alternative tests. We further find that ex ante expected returns have a positive and significant cross-sectional relation with ex ante betas even in the presence of firm size, book-to-market, and momentum. The cross-sectional regression estimate of ex ante market risk premium has a statistical significance as well as an economic significance in that it contains significant forward-looking information on future macroeconomic conditions. Furthermore, in an ex ante world, firm size is still negatively significant, but book-to-market is also negatively significant, which is the opposite of the ex post results. Our risk-adjusted approach provides a framework for extraction of ex ante information from option prices with alternative assumptions of stochastic processes. In this vein, we provide a risk-adjusted stochastic volatility pricing model and discuss its estimation process.

Download or read book Strategic Investment written by Han T. J. Smit and published by Princeton University Press. This book was released on 2012-01-12 with total page 504 pages. Available in PDF, EPUB and Kindle. Book excerpt: Corporate finance and corporate strategy have long been seen as different sides of the same coin. Though both focus on the same broad problem, investment decision-making, the gap between the two sides--and between theory and practice--remains embarrassingly large. This book synthesizes cutting-edge developments in corporate finance and related fields--in particular, real options and game theory--to help bridge this gap. In clear, straightforward exposition and through numerous examples and applications from various industries, Han Smit and Lenos Trigeorgis set forth an extended valuation framework for competitive strategies. The book follows a problem-solving approach that synthesizes ideas from game theory, real options, and strategy. Thinking in terms of options-games can help managers address questions such as: When is it best to invest early to preempt competitive entry, and when to wait? Should a firm compete in R&D or adopt an accommodating stance? How does one value growth options or infrastructure investments? The authors provide a wide range of valuation examples, such as acquisition strategies, R&D investment in high-tech sectors, joint research ventures, product introductions in consumer electronics, infrastructure, and oil exploration investment. Representing a major step beyond standard real options or strategy analysis, and extending the power of real options and strategic thinking in a rigorous fashion, Strategic Investment will be an indispensable guide and resource for corporate managers, MBA students, and academics alike.

Download or read book Hearing to Review Proposals to Establish Exchanges Trading movie Futures written by United States. Congress. House. Committee on Agriculture. Subcommittee on General Farm Commodities and Risk Management and published by . This book was released on 2010 with total page 104 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Option Pricing written by Menachem Brenner and published by Free Press. This book was released on 1983 with total page 264 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Advanced Asset Pricing Theory written by Ma Chenghu and published by World Scientific Publishing Company. This book was released on 2011-01-03 with total page 816 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book provides a broad introduction of modern asset pricing theory with equal treatments for both discrete-time and continuous-time modeling. Both the no-arbitrage and the general equilibrium approaches of asset pricing theory are treated coherently within the general equilibrium framework.The analyses and coverage are up to date, comprehensive and in-depth. Topics include microeconomic foundation of asset pricing theory, the no-arbitrage principle and fundamental theorem, risk measurement and risk management, sequential portfolio choice, equity premium decomposition, option pricing, bond pricing and term structure of interest rates. The merits and limitations are expounded with respect to allocation and information market efficiency, along with the classical expectations hypothesis concerning the information content of yield curve and bond prices. Efforts are also made towards the resolution of several well-documented puzzles in empirical finance, which include the equity premium puzzle, the risk free rate puzzle, and the money-ness bias phenomenon of Black-Scholes option pricing model.The theory is self-contained and unified in presentation. The inclusion of proofs and derivations to enhance the transparency of the underlying arguments and conditions for the validity of the economic theory makes an ideal advanced textbook or reference book for graduate students specializing in financial economics and quantitative finance. The explanations are detailed enough to capture the interest of those curious readers, and complete enough to provide necessary background material needed to explore further the subject and research literature.

Download or read book Incomplete Information and Heterogeneous Beliefs in Continuous time Finance written by Alexandre C. Ziegler and published by Springer Science & Business Media. This book was released on 2012-11-02 with total page 205 pages. Available in PDF, EPUB and Kindle. Book excerpt: After a brief review of the existing incomplete information literature, the effect of incomplete information on investors' exptected utility, risky asset prices, and interest rates is described. It is demonstrated that increasing the quality of investors' information need not increase their expected utility and the prices of risky assets. The impact of other factors is discussed in detail. It is also demonstrated that financial markets in general do not aggregate information efficiently, a fact that can explain the equity premium puzzle.