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

Author

Listed:
  • George Kapetanios

    (Queen Mary University of London)

  • Michael Neumann

    (Queen Mary University of London)

  • George Skiadopoulos

    (Queen Mary University of London University of Piraeus)

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.

Suggested Citation

  • George Kapetanios & Michael Neumann & George Skiadopoulos, 2014. "Jumps in Option Prices and Their Determinants: Real-time Evidence from the E-mini S&P 500 Option Market," Working Papers 730, Queen Mary University of London, School of Economics and Finance.
    • Handle: RePEc:qmw:qmwecw:730
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    More about this item

    Keywords

    Asymmetric information; Co-jumps; Limit order markets; Liquidity; Option Markets; News announcements;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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