How Do Options Add Value? Evidence from the Convertible Bond Market*

Inmoo Lee, Rex Wang Renjie and Patrick Verwijmeren

Review of Finance, 2023, vol. 27, issue 1, 189-222

Abstract: This paper studies the value relevance of the options market by focusing on convertible bond pricing. Pricing convertible bonds requires essentially the same set of information necessary to price options. Using a regression discontinuity design based on minimum stock price requirements for option listings, we find that the availability of stock options helps issuers attract more convertible bond buyers and reduces convertible issuers’ cost of financing. Our results highlight that the availability of individual stock options can add value to security issuers.

Keywords: option listing; cost of financing; convertible bonds; information environment (search for similar items in EconPapers)
JEL-codes: G14 G23 G32 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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