Title: How does price discovery take place in the option market: Evidence from S\&P 500 index options
Authors: Diego Amaya - Wilfrid Laurier University (Canada) [presenting]
Fabricio Perez - Wilfrid Laurier University (Canada)
Abstract: A novel methodology is proposed to quantify the price discovery contribution of options to the underlying asset value. Using options on the S\&P 50 index, we show fundamental changes in this market during the sample period between 2004 and 2018. We find an important shift in price discovery from call to put options, and from long-term contracts to short-term contracts. We show that volatility and jump risks have different effects on the information share of options, and that these effects vary across years, contract types, and maturities. Our results suggest that information flows in the option market change across time and depend on option characteristics, implying that these contracts are actively used for risk-sharing opportunities in this market.