The effect of market sentiment and information asymmetry on option pricing |
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Affiliation: | 1. Institute for Financial Studies, Fudan University, China;2. Department of Statistics, Columbia University, NY, USA;3. Odette School of Business, University of Windsor, Windsor, Ontario N9B 3P4, Canada;4. Institute for Financial Studies, Fudan University, China |
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Abstract: | This work addresses the impact of imperfections, such as information asymmetry and market sentiment, on the performance of option pricing models. More precisely, this work compares the option pricing model of Black and Scholes and the same model in the presence of imperfections. This study is based on S&P 500 options that cover the period between 17/03/2000 and 14/06/2013. The achieved results show that, in general, in the presence of imperfections, the model is more effective than the Black and Scholes model. This research appears to be promising for the incorporation of imperfections into the assessment of options. |
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Keywords: | Option pricing Market imperfections Information asymmetry Market sentiment Put-call parity |
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