To make high-quality research more accessible and easier to explore.

Fields:

Demand-Based Option Pricing

Review of Financial Studies 2009 22(10), 4259-4299 open access
We model the demand-pressure effect on prices when options cannot be perfectly hedged. The model shows that demand pressure in one option contract increases its price by an amount proportional to the variance of the unhedgeable part of the option. Similarly, the demand pressure increases the price of any other option by an amount proportional to the covariance of their unhedgeable parts.