Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/171948
Authors: 
Chin, Faith
Garriott, Corey
Year of Publication: 
2016
Series/Report no.: 
Bank of Canada Staff Working Paper 2016-57
Abstract: 
We document the outcome of an options decimalization pilot on Canada's derivatives exchange. Decimalization improves measures of liquidity and price efficiency. The impact differs by the moneyness of an option and is greatest for out-of-the-money options. In contrast with equity studies, decimalization improved depth near the best prices and improved liquidity for larger trades. We conclude with advice on decimalizing options: options that benefit most have underlying volatility less than 40, underlying equity bid-ask spread less than 50 basis points, at least one trade a day, and a distribution of depth skewed toward marketable prices.
Subjects: 
Financial markets
Market structure and pricing
Financial system regulation and policies
JEL: 
G20
G14
L10
Document Type: 
Working Paper

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