English, Article, Journal or magazine article edition: Clustering of Trading Activity in the DAX Index Options Market Alexander K. Koch; Zdravetz Lazarov

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Bookmark: http://trove.nla.gov.au/version/52494
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Clustering of Trading Activity in the DAX Index Options Market
Author
  • Alexander K. Koch
  • Zdravetz Lazarov
Physical Description
  • preprint
Notes
  • A common contention is that more liquid financial contracts draw trading volume from contracts for which they are close substitutes. This paper tests this hypothesis by analyzing clustering of trading activity in DAX index options. Contracts with identical maturities cluster around particular classes of strike prices. For example, options with strikes ending on 50 are less traded than options with strikes ending on 00. The degree of substitution between options with neighboring strikes depends on the strike price grid and options’ characteristics. Our empirical analysis finds a positive relation between clustering and substitutiability between option contracts, providing support to the initial hypothesis.
  • RePEc:hol:holodi:0502
  • Trades in DAX index options with identical maturities cluster around particular classes of strike prices. For example, options with strikes ending on 50 are less traded than options with strikes ending on 00. Clustering is higher when options with close strike prices are good substitutes. The degree of substitution between options with neighboring strikes depends on the strike price grid and options' characteristics. Using regression analysis we analyze the relation between clustering, grid size, and the options' characteristics. To our knowledge this paper is the first to explore how the grid size of strike prices affects options' trading volume.
  • Clustering, Incidental Truncation, Index Options, Volume
  • RePEc:bon:bonedp:bgse30_2001
Language
  • English
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