Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/29420 
Year of Publication: 
1994
Series/Report no.: 
ZEW Discussion Papers No. 94-06
Publisher: 
Zentrum für Europäische Wirtschaftsforschung (ZEW), Mannheim
Abstract: 
In this paper the implicit early unwind option of a risk neutral arbitrageur is valued. The problem is analyzed in a market microstructure framework where four different groups of market participants interact. Within this model the equilibrium price relationship between stock and futures markets is determined. Since the underlying of the option is influenced by arbitrage trading the underlying of the option depends contrary to standard option pricing theory on the unwind option itself. The non-Markovian stochastic process of the basis is characterized and the results of an extensive comparative static analysis of the option value are presented.
Document Type: 
Working Paper
Document Version: 
Digitized Version

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