IDEAS home Printed from https://ideas.repec.org/a/eee/finmar/v11y2008i1p1-35.html
   My bibliography  Save this article

Failure to exercise call options: An anomaly and a trading game

Author

Listed:
  • Pool, Veronika Krepely
  • Stoll, Hans R.
  • Whaley, Robert E.

Abstract

No abstract is available for this item.

Suggested Citation

  • Pool, Veronika Krepely & Stoll, Hans R. & Whaley, Robert E., 2008. "Failure to exercise call options: An anomaly and a trading game," Journal of Financial Markets, Elsevier, vol. 11(1), pages 1-35, February.
    • Handle: RePEc:eee:finmar:v:11:y:2008:i:1:p:1-35
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1386-4181(07)00027-4
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Chip Heath & Steven Huddart & Mark Lang, 1999. "Psychological Factors and Stock Option Exercise," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(2), pages 601-627.
    2. Castanias, Rick & Chung, Ki-Young & Johnson, Herb, 1988. "Dividend Spreads," The Journal of Business, University of Chicago Press, vol. 61(3), pages 299-319, July.
    3. Dunn, Kenneth B. & Eades, Kenneth M., 1989. "Voluntary conversion of convertible securities and the optimal call strategy," Journal of Financial Economics, Elsevier, vol. 23(2), pages 273-301, August.
    4. Roll, Richard, 1977. "An analytic valuation formula for unprotected American call options on stocks with known dividends," Journal of Financial Economics, Elsevier, vol. 5(2), pages 251-258, November.
    5. Robert C. Merton, 2005. "Theory of rational option pricing," World Scientific Book Chapters, in: Sudipto Bhattacharya & George M Constantinides (ed.), Theory Of Valuation, chapter 8, pages 229-288, World Scientific Publishing Co. Pte. Ltd..
    6. Jia Hao & Avner Kalay & Stewart Mayhew, 2010. "Ex-dividend Arbitrage in Option Markets," The Review of Financial Studies, Society for Financial Studies, vol. 23(1), pages 271-303, January.
    7. repec:bla:jfinan:v:59:y:2004:i:2:p:711-753 is not listed on IDEAS
    8. Diz, Fernando & Finucane, Thomas J, 1993. "The Rationality of Early Exercise Decisions: Evidence from the S&P 100 Index Options Market," The Review of Financial Studies, Society for Financial Studies, vol. 6(4), pages 765-797.
    9. Elton, Edwin J & Gruber, Martin J, 1970. "Marginal Stockholder Tax Rates and the Clientele Effect," The Review of Economics and Statistics, MIT Press, vol. 52(1), pages 68-74, February.
    10. Finucane, Thomas J., 1997. "An empirical analysis of common stock call exercise: A note," Journal of Banking & Finance, Elsevier, vol. 21(4), pages 563-571, April.
    11. Overdahl, James A., 1988. "The Early Exercise of Options on Treasury Bond Futures," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 23(4), pages 437-449, December.
    12. repec:bla:jfinan:v:58:y:2003:i:6:p:2437-2464 is not listed on IDEAS
    13. Kalay, Avner & Subrahmanyam, Marti G, 1984. "The Ex-Dividend Day Behavior of Option Prices," The Journal of Business, University of Chicago Press, vol. 57(1), pages 113-128, January.
    14. Allen M. Poteshman & Vitaly Serbin, 2003. "Clearly Irrational Financial Market Behavior: Evidence from the Early Exercise of Exchange Traded Stock Options," Journal of Finance, American Finance Association, vol. 58(1), pages 37-70, February.
    15. Geske, Robert, 1979. "A note on an analytical valuation formula for unprotected American call options on stocks with known dividends," Journal of Financial Economics, Elsevier, vol. 7(4), pages 375-380, December.
    16. Patrick De Fontnouvelle & Raymond P. H. Fishe & Jeffrey H. Harris, 2003. "The Behavior of Bid‐Ask Spreads and Volume in Options Markets during the Competition for Listings in 1999," Journal of Finance, American Finance Association, vol. 58(6), pages 2437-2463, December.
    17. repec:bla:jfinan:v:59:y:2004:i:2:p:933-962 is not listed on IDEAS
    18. Barone-Adesi, Giovanni & Whaley, Robert E, 1987. "Efficient Analytic Approximation of American Option Values," Journal of Finance, American Finance Association, vol. 42(2), pages 301-320, June.
    19. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    20. Whaley, Robert E., 1981. "On the valuation of American call options on stocks with known dividends," Journal of Financial Economics, Elsevier, vol. 9(2), pages 207-211, June.
    21. Stanton, Richard, 1995. "Rational Prepayment and the Valuation Mortgage-Backed Securities," The Review of Financial Studies, Society for Financial Studies, vol. 8(3), pages 677-708.
    22. Barone-Adesi, Giovanni & Whaley, Robert E., 1986. "The valuation of American call options and the expected ex-dividend stock price decline," Journal of Financial Economics, Elsevier, vol. 17(1), pages 91-111, September.
    Full references (including those not matched with items on IDEAS)

    Citations

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


    Cited by:

    1. Jensen, Mads Vestergaard & Pedersen, Lasse Heje, 2016. "Early option exercise: Never say never," Journal of Financial Economics, Elsevier, vol. 121(2), pages 278-299.
    2. Weihan Li & Jin E. Zhang & Xinfeng Ruan & Pakorn Aschakulporn, 2024. "An empirical study on the early exercise premium of American options: Evidence from OEX and XEO options," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 44(7), pages 1117-1153, July.
    3. F. Douglas Foster & Geoffrey J. Warren, 2015. "Why Might Investors Choose Active Management?," Journal of Behavioral Finance, Taylor & Francis Journals, vol. 16(1), pages 20-39, January.
    4. Cosma, Antonio & Galluccio, Stefano & Scaillet, Olivier, 2012. "Valuing American options using fast recursive projections," Working Papers unige:41856, University of Geneva, Geneva School of Economics and Management.
    5. Eickholt, Mathias, 2014. "Behavioral financial engineering in the fixed-income market: The influence of the coupon structure," Passauer Diskussionspapiere, Betriebswirtschaftliche Reihe 16, University of Passau, Faculty of Business and Economics.
    6. Chockalingam, Arun & Feng, Haolin, 2015. "The implication of missing the optimal-exercise time of an American option," European Journal of Operational Research, Elsevier, vol. 243(3), pages 883-896.
    7. Cosma, Antonio & Galluccio, Stefano & Pederzoli, Paola & Scaillet, Olivier, 2020. "Early Exercise Decision in American Options with Dividends, Stochastic Volatility, and Jumps," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 55(1), pages 331-356, February.
    8. Eickholt, Mathias & Entrop, Oliver & Wilkens, Marco, 2014. "What makes individual investors exercise early? Empirical evidence from the fixed-income market," Passauer Diskussionspapiere, Betriebswirtschaftliche Reihe 15, University of Passau, Faculty of Business and Economics.
    9. Simon Scheidegger & Adrien Treccani, 2021. "Pricing American Options under High-Dimensional Models with Recursive Adaptive Sparse Expectations [Telling from Discrete Data Whether the Underlying Continuous-Time Model Is a Diffusion]," Journal of Financial Econometrics, Oxford University Press, vol. 19(2), pages 258-290.
    10. Liu, Wen-Rang & Chiang, Yao-Min & Chung, San-Lin, 2024. "Dividend-tax avoidance trade and its impact on the stock market," Pacific-Basin Finance Journal, Elsevier, vol. 85(C).
    11. Antonio Figueiredo & Pankaj Jain & Suchismita Mishra, 2023. "The role of fleeting orders on option expiration days," Quantitative Finance, Taylor & Francis Journals, vol. 23(10), pages 1511-1529, October.
    12. Eickholt, Mathias & Entrop, Oliver & Wilkens, Marco, 2014. "Individual investors and suboptimal early exercises in the fixed-income market," Passauer Diskussionspapiere, Betriebswirtschaftliche Reihe 14, University of Passau, Faculty of Business and Economics.
    13. Eickholt, Mathias & Entrop, Oliver & Wilkens, Marco, 2018. "What makes individual investors exercise early? Empirical evidence from non-tradable fixed-income products," Journal of Banking & Finance, Elsevier, vol. 97(C), pages 318-334.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.
    2. Weihan Li & Jin E. Zhang & Xinfeng Ruan & Pakorn Aschakulporn, 2024. "An empirical study on the early exercise premium of American options: Evidence from OEX and XEO options," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 44(7), pages 1117-1153, July.
    3. Karen Alpert, 2010. "Taxation and the Early Exercise of Call Options," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(5-6), pages 715-736.
    4. Karen Alpert, 2010. "Taxation and the Early Exercise of Call Options," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(5‐6), pages 715-736, June.
    5. Broadie, Mark & Detemple, Jerome & Ghysels, Eric & Torres, Olivier, 2000. "Nonparametric estimation of American options' exercise boundaries and call prices," Journal of Economic Dynamics and Control, Elsevier, vol. 24(11-12), pages 1829-1857, October.
    6. Grace Phang & Rob Brown, 2011. "Rational early exercise of call options: Australian evidence," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 51(3), pages 732-744, September.
    7. Linda S. Klein & David R. Peterson, 1988. "Investor Expectations Of Volatility Increases Around Large Stock Splits As Implied In Call Option Premia," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 11(1), pages 71-80, March.
    8. Antonio Cosma & Stefano Galluccio & Paola Pederzoli & O. Scaillet, 2012. "Valuing American Options Using Fast Recursive Projections," Swiss Finance Institute Research Paper Series 12-26, Swiss Finance Institute.
    9. Manuel Moreno & Javier Navas, 2003. "On the Robustness of Least-Squares Monte Carlo (LSM) for Pricing American Derivatives," Review of Derivatives Research, Springer, vol. 6(2), pages 107-128, May.
    10. Mark Broadie & Jérôme Detemple, 1996. "Recent Advances in Numerical Methods for Pricing Derivative Securities," CIRANO Working Papers 96s-17, CIRANO.
    11. Mondher Bellalah, 2009. "Derivatives, Risk Management & Value," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 7175, August.
    12. Roland Mallier & Ghada Alobaidi, 2000. "Laplace transforms and American options," Applied Mathematical Finance, Taylor & Francis Journals, vol. 7(4), pages 241-256.
    13. Gukhal, C.R.Chandrasekhar Reddy, 2004. "The compound option approach to American options on jump-diffusions," Journal of Economic Dynamics and Control, Elsevier, vol. 28(10), pages 2055-2074, September.
    14. Tian-Shyr Dai & Yuh-Dauh Lyuu, 2009. "Accurate approximation formulas for stock options with discrete dividends," Applied Economics Letters, Taylor & Francis Journals, vol. 16(16), pages 1657-1663.
    15. Barraclough, Kathryn & Stoll, Hans R. & Whaley, Robert E., 2012. "Stock option contract adjustments: The case of special dividends," Journal of Financial Markets, Elsevier, vol. 15(2), pages 233-257.
    16. Engstrom, Malin & Norden, Lars, 2000. "The early exercise premium in American put option prices," Journal of Multinational Financial Management, Elsevier, vol. 10(3-4), pages 461-479, December.
    17. Robert L. Brown & Dominique Achour, 1984. "The Pricing of Land Options," Urban Studies, Urban Studies Journal Limited, vol. 21(3), pages 317-323, August.
    18. Jensen, Mads Vestergaard & Pedersen, Lasse Heje, 2016. "Early option exercise: Never say never," Journal of Financial Economics, Elsevier, vol. 121(2), pages 278-299.
    19. Chen, Yu-Fu & Zoega, Gylfi, 2010. "An essay on the generational effect of employment protection," Mathematical Social Sciences, Elsevier, vol. 59(3), pages 349-359, May.
    20. Dan W. French & Edwin D. Maberly, 1992. "Early Exercise Of American Index Options," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 15(2), pages 127-137, June.

    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:eee:finmar:v:11:y:2008:i:1:p:1-35. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/finmar .

    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.