Loading...
research article
Product Market Competition and Option Prices
November 1, 2019
Most firms face some form of competition in product markets. The degree of competition a firm faces feeds back into its cash flows and affects the values of the securities it issues. Through its effects on stock prices, product market competition affects the prices of options on equity and leads to an inverse relationship between equity returns and volatility, generating a negative volatility skew in option prices. Using a large sample of U.S. equity options, we provide empirical support for this finding and demonstrate the importance of accounting for product market competition when explaining the cross-sectional variation in option skew.
Type
research article
Web of Science ID
WOS:000498047300007
Authors
Publication date
2019-11-01
Publisher
Published in
Volume
32
Issue
11
Start page
4343
End page
4386
Peer reviewed
REVIEWED
EPFL units
Available on Infoscience
December 5, 2019
Use this identifier to reference this record