Option Prices and Disclosure: Theory and Measurement

Kevin Smith
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Kevin Smith: Stanford University Graduate School of Business

Research Papers from Stanford University, Graduate School of Business

Abstract: In this paper, I develop an option-pricing model that formally incorporates a disclosure event. Using the model, I first theoretically examine how two properties of the disclosure--its overall informativeness and its informativeness given good relative to bad news--influence the impact that it has on option prices around its release. I then show that, by jointly examining the prices of options with different strikes, a researcher can measure the properties of a single disclosure event, an impossible task using equity prices alone. Finally, I develop and analyze methods of performing this measurement task.

Date: 2018-10
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:stabus:3683

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