IDEAS home Printed from https://ideas.repec.org/a/bla/jfnres/v20y1997i1p1-12.html
   My bibliography  Save this article

The Relation Between Option Mispricing And Volume In The Black‐Scholes Option Model

Author

Listed:
  • D. Michael Long
  • Dennis T. Officer

Abstract

We investigate the relation between mispricing in the Black‐Scholes option pricing (BSOP) model and volume in the option market. Our results indicate heavily traded call options are priced more efficiently and have lower mispricing errors than thinly traded options. However, this relation shifts significantly on days when call option trading is high. On high‐volume days, the BSOP model mispricing errors are significantly larger than mispricing errors on normal‐volume days. We believe large increases in volume may reflect new and changing market information, thus making pricing less efficient in the BSOP model.

Suggested Citation

  • D. Michael Long & Dennis T. Officer, 1997. "The Relation Between Option Mispricing And Volume In The Black‐Scholes Option Model," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 20(1), pages 1-12, March.
    • Handle: RePEc:bla:jfnres:v:20:y:1997:i:1:p:1-12
    DOI: 10.1111/j.1475-6803.1997.tb00233.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1475-6803.1997.tb00233.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1475-6803.1997.tb00233.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Saikat Nandi, 2000. "Asymmetric information about volatility: How does it affect implied volatility, option prices and market liquidity?," Review of Derivatives Research, Springer, vol. 3(3), pages 215-236, October.
    2. Wen-chung Guo & Ying-huei Chen, 2014. "Pricing of put warrants and competition among issuers," Economics Bulletin, AccessEcon, vol. 34(4), pages 2315-2323.
    3. Robert E.J. Hibbard & Rob Brown & Keith R. McLaren, 2002. "Nonsimultaneity and Futures Option Pricing: Simulation and Empirical Evidence," Monash Econometrics and Business Statistics Working Papers 13/02, Monash University, Department of Econometrics and Business Statistics.
    4. Nikkinen, Jussi, 2003. "Normality tests of option-implied risk-neutral densities: evidence from the small Finnish market," International Review of Financial Analysis, Elsevier, vol. 12(2), pages 99-116.
    5. Panayiotis Andreou & Chris Charalambous & Spiros Martzoukos, 2006. "Robust Artificial Neural Networks for Pricing of European Options," Computational Economics, Springer;Society for Computational Economics, vol. 27(2), pages 329-351, May.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jfnres:v:20:y:1997:i:1:p:1-12. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/sfaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.