Access

You are not currently logged in.

Access your personal account or get JSTOR access through your library or other institution:

login

Log in to your personal account or through your institution.

Information Quality and Options

Joel M. Vanden
The Review of Financial Studies
Vol. 21, No. 6 (Nov., 2008), pp. 2635-2676
Stable URL: http://www.jstor.org/stable/40056895
Page Count: 42
  • Download ($42.00)
  • Cite this Item
Information Quality and Options
Preview not available

Abstract

Microstructure researchers have long understood that information quality has an effect on price formation in the underlying asset market. However, option researchers have largely ignored the fact that information quality might also impact the options market. This article characterizes the nature of the impact by showing how option prices and implied volatility levels are related to the forward looking information quality path. This result follows from a noisy rational expectations model that abandons the normal distribution in favor of the gamma distribution, but maintains the standard assumption of exponential utility. Thus the new model bridges the gap between the microstructure literature that relies so heavily on the normal-exponential framework, and the options literature that relies exclusively on models that are consistent with the limited liability of stock prices. The model's tractability allows for a robustness check against the standard framework and provides a viable setting for analyzing the empirical implications of information quality for the options market.

Page Thumbnails

  • Thumbnail: Page 
[2635]
    [2635]
  • Thumbnail: Page 
2636
    2636
  • Thumbnail: Page 
2637
    2637
  • Thumbnail: Page 
2638
    2638
  • Thumbnail: Page 
2639
    2639
  • Thumbnail: Page 
2640
    2640
  • Thumbnail: Page 
2641
    2641
  • Thumbnail: Page 
2642
    2642
  • Thumbnail: Page 
2643
    2643
  • Thumbnail: Page 
2644
    2644
  • Thumbnail: Page 
2645
    2645
  • Thumbnail: Page 
2646
    2646
  • Thumbnail: Page 
2647
    2647
  • Thumbnail: Page 
2648
    2648
  • Thumbnail: Page 
2649
    2649
  • Thumbnail: Page 
2650
    2650
  • Thumbnail: Page 
2651
    2651
  • Thumbnail: Page 
2652
    2652
  • Thumbnail: Page 
2653
    2653
  • Thumbnail: Page 
2654
    2654
  • Thumbnail: Page 
2655
    2655
  • Thumbnail: Page 
2656
    2656
  • Thumbnail: Page 
2657
    2657
  • Thumbnail: Page 
2658
    2658
  • Thumbnail: Page 
2659
    2659
  • Thumbnail: Page 
2660
    2660
  • Thumbnail: Page 
2661
    2661
  • Thumbnail: Page 
2662
    2662
  • Thumbnail: Page 
2663
    2663
  • Thumbnail: Page 
2664
    2664
  • Thumbnail: Page 
2665
    2665
  • Thumbnail: Page 
2666
    2666
  • Thumbnail: Page 
2667
    2667
  • Thumbnail: Page 
2668
    2668
  • Thumbnail: Page 
2669
    2669
  • Thumbnail: Page 
2670
    2670
  • Thumbnail: Page 
2671
    2671
  • Thumbnail: Page 
2672
    2672
  • Thumbnail: Page 
2673
    2673
  • Thumbnail: Page 
2674
    2674
  • Thumbnail: Page 
2675
    2675
  • Thumbnail: Page 
2676
    2676