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Listing of classical options and the pricing of discount certificates

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  • Schertler, Andrea

Abstract

Do new listings of EUREX options affect the prices of discount certificates that are replicated with precisely such a newly listed option? An event study provides a significantly negative average abnormal margin change on the day on which the EUREX option of the replication portfolio is listed. I model the abnormal margin changes as a function of hedging cost, unhedgeable risk, and price pressure. Higher hedging costs, higher opportunity costs from unhedgeable risk, and lower intra-EUWAX competition lead to significantly lower abnormal margin changes. I interpret the effect of intra-EUWAX competition as a price pressure effect. Economically, rebalancing and opportunity costs from unhedgeable risk are the most important drivers of abnormal margin changes when EUREX options are listed.

Suggested Citation

  • Schertler, Andrea, 2021. "Listing of classical options and the pricing of discount certificates," Journal of Banking & Finance, Elsevier, vol. 123(C).
    • Handle: RePEc:eee:jbfina:v:123:y:2021:i:c:s0378426620302727
    DOI: 10.1016/j.jbankfin.2020.106011
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    More about this item

    Keywords

    Discount certificate; Connectivity between financial markets; Event study; Hedging costs; Unhedgeable risk; Price pressure;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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