Trading frequency and implied transaction costs of options: evidence from the Australian index option market

Trading frequency and implied transaction costs of options: evidence from the Australian index option market

This study examines the pricing performance of a few option pricing models in valuing call options on S&P/ASX 200 index with different transaction costs under various trading frequencies. The option pricing models of the original Leland model as well as its two variations are tested and contrast...

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Main Authors: Abdullah, Mimi Hafizah, Li, Steven
Format: Conference or Workshop Item
Language:English
Published: 2010
Subjects:
QA Mathematics
Online Access:http://irep.iium.edu.my/11551/
http://irep.iium.edu.my/11551/
http://irep.iium.edu.my/11551/1/ICBER2010_mimi.pdf
id iium-11551
recordtype eprints
spelling iium-115512012-02-02T12:32:08Z http://irep.iium.edu.my/11551/ Trading frequency and implied transaction costs of options: evidence from the Australian index option market Abdullah, Mimi Hafizah Li, Steven QA Mathematics This study examines the pricing performance of a few option pricing models in valuing call options on S&P/ASX 200 index with different transaction costs under various trading frequencies. The option pricing models of the original Leland model as well as its two variations are tested and contrasted with the Black-Scholes-Merton (BSM) model across moneyness and maturity. For the purpose of discussion, we focus on at-the-money call options as they are the most liquid options. Our empirical results reveal that at low transaction costs, the two variations of the original Leland model regardless of their trading frequencies appear to perform well in pricing at-the-money call options. Furthermore, the examination of the estimates of the implied transaction costs in S&P/ASX 200 index options reveals that as trading becomes more frequent (from quarterly to daily), the implied transaction costs decreases. Moreover, the longer the time to maturity, the larger the implied transaction costs. 2010-03-16 Conference or Workshop Item PeerReviewed application/pdf en http://irep.iium.edu.my/11551/1/ICBER2010_mimi.pdf Abdullah, Mimi Hafizah and Li, Steven (2010) Trading frequency and implied transaction costs of options: evidence from the Australian index option market. In: International Conference on Business and Economics Research (ICBER), 15-16 March 2010, Kuching Sarawak. (Unpublished) http://internationalconference.com.my/proceeding/icber2010_proceeding/PAPER_205_TradingFrequency.pdf
repository_type Digital Repository
institution_category Local University
institution International Islamic University Malaysia
building IIUM Repository
collection Online Access
language English
topic QA Mathematics
spellingShingle QA Mathematics
Abdullah, Mimi Hafizah
Li, Steven
Trading frequency and implied transaction costs of options: evidence from the Australian index option market
description This study examines the pricing performance of a few option pricing models in valuing call options on S&P/ASX 200 index with different transaction costs under various trading frequencies. The option pricing models of the original Leland model as well as its two variations are tested and contrasted with the Black-Scholes-Merton (BSM) model across moneyness and maturity. For the purpose of discussion, we focus on at-the-money call options as they are the most liquid options. Our empirical results reveal that at low transaction costs, the two variations of the original Leland model regardless of their trading frequencies appear to perform well in pricing at-the-money call options. Furthermore, the examination of the estimates of the implied transaction costs in S&P/ASX 200 index options reveals that as trading becomes more frequent (from quarterly to daily), the implied transaction costs decreases. Moreover, the longer the time to maturity, the larger the implied transaction costs.
format Conference or Workshop Item
author Abdullah, Mimi Hafizah
Li, Steven
author_facet Abdullah, Mimi Hafizah
Li, Steven
author_sort Abdullah, Mimi Hafizah
title Trading frequency and implied transaction costs of options: evidence from the Australian index option market
title_short Trading frequency and implied transaction costs of options: evidence from the Australian index option market
title_full Trading frequency and implied transaction costs of options: evidence from the Australian index option market
title_fullStr Trading frequency and implied transaction costs of options: evidence from the Australian index option market
title_full_unstemmed Trading frequency and implied transaction costs of options: evidence from the Australian index option market
title_sort trading frequency and implied transaction costs of options: evidence from the australian index option market
publishDate 2010
url http://irep.iium.edu.my/11551/
http://irep.iium.edu.my/11551/
http://irep.iium.edu.my/11551/1/ICBER2010_mimi.pdf
first_indexed 2023-09-18T20:20:51Z
last_indexed 2023-09-18T20:20:51Z
_version_ 1777408096959725568

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