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We develop statistical methods to detect informed trading in options markets. We apply these methods to 31 companies from various sectors over 14 years analyzing approximately 9.6 million option prices. We find that option informed trading tends to cluster prior to certain events, takes place...
Persistent link: https://www.econbiz.de/10009314008
This appendix extends the empirical results in Chesney, Crameri, and Mancini (2011). Informed trading activities on put and call options are analyzed for 19 companies in the banking and insurance sectors from January 1996 to September 2009. Our empirical findings suggest that certain events such...
Persistent link: https://www.econbiz.de/10009314012
We clarify that the widely used estimation method for the LOT liquidity model in the market microstructure literature is improper in the sense of econometric inference. Based on an extensive simulation study and a real data analysis, we show that this method not only overestimates the true...
Persistent link: https://www.econbiz.de/10012990817
This paper examines how volatility positions can be optimally constructed by modeling the selection process as a linear discrete ill-posed problem with box constraints. We show how this framework allows for a priori investor expectations and risk parameters to be applied in the optimization...
Persistent link: https://www.econbiz.de/10014236189
Persistent link: https://www.econbiz.de/10009783998
One of the most important factors to control for the achievements of investment portfolio returns is risk. If we only think that a 100% positive return is needed to recover a portfolio loss of 50%, we can understand why. With the advent of the exponential growth of technology usage in markets,...
Persistent link: https://www.econbiz.de/10014254526
This paper examines the effectiveness of using futures contracts as hedging instruments of: (1) alternative models of volatility for estimating conditional variances and covariances; (2) alternative currencies; and (3) alternative maturities of futures contracts. For this purpose, daily data of...
Persistent link: https://www.econbiz.de/10013113663
In this article, the authors propose an order flow simulator for meta orders such as those originating from the trading activity of buy-side firms. The simulator is designed with three key goals in mind. First, it should be simple to use and integrate into different applications. Second, it must...
Persistent link: https://www.econbiz.de/10013406041
While common machine learning algorithms focus on minimizing the mean-square errors of model fit, we show that genetic programming, GP, is well-suited to maximize an economic objective, the Sharpe ratio of the usual spread portfolio in the cross-section of expected stock returns. In contrast to...
Persistent link: https://www.econbiz.de/10013242613
Concerns about the fragility of the financial system caused by the OTC derivatives market has encouraged the increased use of counterparty risk mitigation techniques including the use of market compression. In this process groups of market participants share position information via a third...
Persistent link: https://www.econbiz.de/10013063807