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Who buys options from whom? The role of options in an economy with heterogeneous

Huang, J (2000) Who buys options from whom? The role of options in an economy with heterogeneous. Working Paper. The Department of Accounting and Finance, Lancaster University.

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    Abstract

    In this paper we first show that call options, together with the market portfolio, are sufficient to obtain Pareto efficiency while put options are not. Next we investigate how investors' heterogeneous preferences and beliefs affect their investment strategies and who buys options from whom. We show that an investor buys options with strike prices below a threshold from investors who have lower cautiousness/optimism while selling options with strike prices above the threshold to investors who have higher cautiousness/optimism. We also show that the investor's threshold increases with increases in his cautiousness and optimism.

    Item Type: Monograph (Working Paper)
    Subjects: UNSPECIFIED
    Departments: Lancaster University Management School > Accounting & Finance
    ID Code: 48605
    Deposited By: ep_importer_pure
    Deposited On: 11 Jul 2011 22:01
    Refereed?: No
    Published?: Published
    Last Modified: 27 Jul 2012 01:11
    Identification Number:
    URI: http://eprints.lancs.ac.uk/id/eprint/48605

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