Blog

I am not a professional blogger but a true passionate about finance research. As various projects are progressing, there is a lot of information which I find to be relevant not only to academics but also to professionals in the finance industry.

The purpose of this blog is to share this information in a concise way and make research knowledge more accessible, with the result of not necessarily using academic references, citations or specific vocabulary. The blog covers topics as varied as FinTech and its applications in finance to the outcomes of my various academic involvements. Enjoy the reading!

Blog

I am not a professional blogger but a true passionate about finance research. As various projects are progressing, there is a lot of information which I find to be relevant not only to academics but also to professionals in the finance industry.

The purpose of this blog is to share this information in a concise way and make research knowledge more accessible, with the result of not necessarily using academic references, citations or specific vocabulary. The blog covers topics as varied as FinTech and its applications in finance to the outcomes of my various academic involvements. Enjoy the reading!

Research Update

My recent research focuses on understanding how investors’ demand pressures alter inventory risk management strategies of market makers in the equity options market.

Derivatives, unlike stocks, are in zero net supply. Thus, positive or negative demand pressures, and inability to hedge perfectly, can lead to various deviations from model-implied prices. These deviations are non-trivial and result in different qualities of executions depending on what time of a day you trade. I am currently working with LiveVol/CBOE to attract attention of academics and industry practitioners about the importance of using intra-day trading equity options data rather than end-of-day closing prices.

Option Returns: Closing Prices are not What You Pay

End of day closing option prices do not entirely reflect market values of contracts. They are more associated with premiums that options market makers demand for their overnight inventory risks. The difference in delta-hedged option returns using morning quotes vs. closing quotes can reach 1% per day. All academic and industry communities use end-of-day closing prices for back-testing daily trading and hedging strategies or identifying arbitrage opportunities and option return predictability. We warn that their results can be misleading by significant amounts if one continues to use closing prices.

Disagreement in the Equity Options Market and Stock Returns

(Revise and Resubmit, Review of Financial Studies)
with Benjamin Golez (Notre Dame)

Do Option-Based Measures of Stock Mispricing Find Investment Opportunities or Market Frictions?

with Martijn Cremers (Notre Dame), Paul Schultz (Notre Dame) and Stephen Szaura (McGill)