Jumps in Option Prices and Their Determinants: Real-time Evidence from the E-mini S&P 500 Option Market

George Kapetanios, Michael Neumann and George Skiadopoulos
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Michael Neumann: Queen Mary University of London
George Skiadopoulos: Queen Mary University of London University of Piraeus

No 730, Working Papers from Queen Mary University of London, School of Economics and Finance

Abstract: We study the real-time characteristics and drivers of jumps in option prices. To this end, we employ high frequency data from the 24-hour E-mini S&P 500 options market. We find that option prices do not jump simultaneously across strikes and maturities and are uncorrelated with jumps in the underlying futures price. 14% to 28% of detected option price jumps occur around scheduled news releases. However, it is illiquidity rather than the news content that drives jumps. Evidence suggests that option traders increase bid-ask spreads to account for trading against investors who are skilled processors of public releases.

Keywords: Asymmetric information; Co-jumps; Limit order markets; Liquidity; Option Markets; News announcements (search for similar items in EconPapers)
JEL-codes: C58 G10 G12 G13 (search for similar items in EconPapers)
Date: 2014-10-27
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Related works:
Journal Article: Jumps in option prices and their determinants: Real-time evidence from the E-mini S&P 500 options market (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:qmw:qmwecw:730

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