On the liquidity of CAC 40 index options Market

Alain François-Heude and Ouidad Yous
Authors registered in the RePEc Author Service: Ouidad YOUSFI ()

No 2014-445, Working Papers from Department of Research, Ipag Business School

Abstract: The current paper shows that CAC 40 index options (namely PXA) display some illiquidity problems. We examine daily data on PXA trades between May 2005 and August 2012. The study evidences the presence of a considerable number of outstanding PXA contracts: most of these options are long-term maturity options and are deep in or deep out the money options. To overcome the highlighted liquidity issues, we propose first to test the generaliza- tion of Gray and Whaley (1999) reset option introduced by François-Heude and Yousfi (2013). The main idea is to reset the strike price PXA option to a new strike price given by the CAC 40 value at a pre-agreed point of time. Then we provide some additional measures regarding the number the PXA strike price series and the PXA expiration dates. Finally, we test them on PXA market. Results show a significant and positive effect on the PXA liquidity.

Keywords: strike reset; option; PXA; liquidity; reset option. (search for similar items in EconPapers)
JEL-codes: G12 G13 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2014-01-01
New Economics Papers: this item is included in nep-mst
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Working Paper: On the liquidity of CAC 40 index options market (2014)
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