Market impact: a systematic study of the high frequency options market

DOI10.1080/14697688.2020.1791948zbMATH Open1476.91190arXiv1902.05418OpenAlexW3084367409MaRDI QIDQ5014173FDOQ5014173

Authors: Emilio Said, Ahmed Bel Hadj Ayed, Damien Thillou, Jean-Jacques Rabeyrin, Frédéric Abergel 

Publication date: 1 December 2021

Published in: Quantitative Finance (Search for Journal in Brave)

Abstract: This paper deals with a fundamental subject that has seldom been addressed in recent years, that of market impact in the options market. Our analysis is based on a proprietary database of metaorders-large orders that are split into smaller pieces before being sent to the market on one of the main Asian markets. In line with our previous work on the equity market [Said et al., 2018], we propose an algorithmic approach to identify metaorders, based on some implied volatility parameters, the at the money forward volatility and at the money forward skew. In both cases, we obtain results similar to the now well understood equity market: Square-root law, Fair Pricing Condition and Market Impact Dynamics.

Full work available at URL: https://arxiv.org/abs/1902.05418

Recommendations

• How efficiency shapes market impact
• Market impact as anticipation of the order flow imbalance
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zbMATH Keywords

implied volatilitymarket microstructuremarket impactlimit ordershigh frequencyfair pricingoptions marketautomated tradingstatistical finance

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Financial markets (91G15)

Cites Work

• Is market impact a measure of the information value of trades? Market response to liquidity vs. informed metaorders
• How efficiency shapes market impact
• Option pricing with linear market impact and nonlinear Black-Scholes equations
• Hedging of covered options with linear market impact and gamma constraint

Cited In (6)

• The inelastic market hypothesis: a microstructural interpretation
• Do price trajectory data increase the efficiency of market impact estimation?
• The role of fleeting orders on option expiration days
• How efficiency shapes market impact
• Co-impact: crowding effects in institutional trading activity
• Is market impact a measure of the information value of trades? Market response to liquidity vs. informed metaorders

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