Identifying Demand and Supply in Index Option Markets

UNIVERSITY OF TECHNOLOGY SYDNEY
Finance Department
Research Seminars in Finance

Kris Jacobs

Topic: Identifying Demand and Supply in Index Option Markets

Speaker: Kris Jacobs, University of Houston. 

Abstract: We identify latent demand and supply in index option markets using a sign-restricted VAR and highlight the bias from treating (equilibrium) net demand as exogenous. Market-maker supply and end-user demand are far from infinitely elastic as assumed by some models, but elasticities are higher than existing estimates from equity markets. As market conditions deteriorate, option demand shifts right and supply shifts left. The ATM (OTM) market is mainly driven by demand (supply), and ATM demand and OTM supply of calls predict option and S&P500 returns. Disentangling supply and demand is essential to understanding the structure of the index option markets. Click here for paper. 

Date: Wednesday, 8 March 2023
Time: 12-1 pm (Australian Eastern Daylight Time)
Venue: Face-to-face seminar in room CB08.08.004, Level 8, Building 8, University of Technology Sydney, 14-28 Ultimo Rd, Ultimo, Sydney, Australia (Map of campus)

Co-ordinator: Kenny Phua
Enquiries: Chloe Qu

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