EconPapers    
Economics at your fingertips  
 

The Supply and Demand of S&P 500 Put Options

George Constantinides () and Lei Lian

Critical Finance Review, 2021, vol. 10, issue 1, 1-20

Abstract: We model the supply of at-the-money (ATM) and out-of-the-money (OTM) S&P 500 index put options by risk-averse market makers (MMs) and their demand by risk-averse customers who hold the index and a risk free asset and buy puts as downside-risk protection. In equilibrium MMs are net sellers and customers are net buyers of index puts. Consistent with the data, the model-implied net buy of puts by customers is decreasing in the risk and put prices because the shift to the left of the supply curve dominates the shift to the right of the demand curve. The observed time series of the net buy of ATM and OTM puts are consistent with their model-implied counterparts.

Keywords: S&P 500 options; Net buy; Option supply and demand; Market makers (search for similar items in EconPapers)
JEL-codes: G11 G12 G23 (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://dx.doi.org/10.1561/104.00000064 (application/xml)

Related works:
Working Paper: The Supply and Demand of S&P 500 Put Options (2015) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:now:jnlcfr:104.00000064

Access Statistics for this article

More articles in Critical Finance Review from now publishers
Bibliographic data for series maintained by Alet Heezemans ().

 
Page updated 2022-10-28
Handle: RePEc:now:jnlcfr:104.00000064