Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/209000 
Year of Publication: 
2016
Series/Report no.: 
PhD Series No. 46.2016
Publisher: 
Copenhagen Business School (CBS), Frederiksberg
Abstract: 
A call option on a stock is a common and widely used derivative. On an average trading day in 2015, more than 800,000 such options traded on the Chicago Board Options Exchange, the largest options exchange in the United States. Each option grants its owner the right to buy 100 of a specific stock at a pre-specified price, no later than a pre-specified date. For example, an option can grant the right to buy 100 General Electric shares for USD 31 each no later than October 21, 2016. An interesting issue is determining when an option is optimally exercised. Merton (1973) shows that in a world without frictions, a call option should never be exercised early, but only at expiration or just before the underlying stock pays a dividend. Chapter one of this thesis shows that suffciently severe frictions can make early exercise optimal. Short-sale costs especially represent an important driver of early exercise. Chapter two shows that when option owners exercise early, it predicts stock returns, consistent with option owners acting on private information. Chapter three does not include options but shows that demand shifts in the shorting market for stocks predict the volatility of the affected stocks, which is consistent with increases in differences of opinions among market participants.
Persistent Identifier of the first edition: 
ISBN: 
9788793483576
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Doctoral Thesis

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.