Trading frequency and implied transaction costs of options: evidence from the Australian index option market
This study examines the pricing performance of a few option pricing models in valuing call options on S&P/ASX 200 index with different transaction costs under various trading frequencies. The option pricing models of the original Leland model as well as its two variations are tested and contrast...
| Main Authors: | , |
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| Format: | Proceeding Paper |
| Language: | English |
| Published: |
2010
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| Subjects: | |
| Online Access: | http://irep.iium.edu.my/11551/ http://irep.iium.edu.my/11551/1/ICBER2010_mimi.pdf |
| _version_ | 1848777340479340544 |
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| author | Abdullah, Mimi Hafizah Li, Steven |
| author_facet | Abdullah, Mimi Hafizah Li, Steven |
| author_sort | Abdullah, Mimi Hafizah |
| building | IIUM Repository |
| collection | Online Access |
| description | This study examines the pricing performance of a few option pricing models in valuing call options on S&P/ASX 200 index with different transaction costs under various trading frequencies. The option pricing models of the original Leland model as well as its two variations are tested and contrasted with the Black-Scholes-Merton (BSM) model across moneyness and maturity. For the purpose of discussion, we focus on at-the-money call options as they are the most liquid options. Our empirical results reveal that at low transaction costs, the two variations of the original Leland model regardless of their trading frequencies appear to perform well in pricing at-the-money call options. Furthermore, the examination of the estimates of the implied transaction costs in S&P/ASX 200 index options reveals that as trading becomes more frequent (from quarterly to daily), the implied transaction costs decreases. Moreover, the longer the time to maturity, the larger the implied transaction costs. |
| first_indexed | 2025-11-14T14:44:26Z |
| format | Proceeding Paper |
| id | iium-11551 |
| institution | International Islamic University Malaysia |
| institution_category | Local University |
| language | English |
| last_indexed | 2025-11-14T14:44:26Z |
| publishDate | 2010 |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | iium-115512012-02-02T12:32:08Z http://irep.iium.edu.my/11551/ Trading frequency and implied transaction costs of options: evidence from the Australian index option market Abdullah, Mimi Hafizah Li, Steven QA Mathematics This study examines the pricing performance of a few option pricing models in valuing call options on S&P/ASX 200 index with different transaction costs under various trading frequencies. The option pricing models of the original Leland model as well as its two variations are tested and contrasted with the Black-Scholes-Merton (BSM) model across moneyness and maturity. For the purpose of discussion, we focus on at-the-money call options as they are the most liquid options. Our empirical results reveal that at low transaction costs, the two variations of the original Leland model regardless of their trading frequencies appear to perform well in pricing at-the-money call options. Furthermore, the examination of the estimates of the implied transaction costs in S&P/ASX 200 index options reveals that as trading becomes more frequent (from quarterly to daily), the implied transaction costs decreases. Moreover, the longer the time to maturity, the larger the implied transaction costs. 2010-03-16 Proceeding Paper PeerReviewed application/pdf en http://irep.iium.edu.my/11551/1/ICBER2010_mimi.pdf Abdullah, Mimi Hafizah and Li, Steven (2010) Trading frequency and implied transaction costs of options: evidence from the Australian index option market. In: International Conference on Business and Economics Research (ICBER), 15-16 March 2010, Kuching Sarawak. (Unpublished) http://internationalconference.com.my/proceeding/icber2010_proceeding/PAPER_205_TradingFrequency.pdf |
| spellingShingle | QA Mathematics Abdullah, Mimi Hafizah Li, Steven Trading frequency and implied transaction costs of options: evidence from the Australian index option market |
| title | Trading frequency and implied transaction costs of options: evidence from the Australian index option market |
| title_full | Trading frequency and implied transaction costs of options: evidence from the Australian index option market |
| title_fullStr | Trading frequency and implied transaction costs of options: evidence from the Australian index option market |
| title_full_unstemmed | Trading frequency and implied transaction costs of options: evidence from the Australian index option market |
| title_short | Trading frequency and implied transaction costs of options: evidence from the Australian index option market |
| title_sort | trading frequency and implied transaction costs of options: evidence from the australian index option market |
| topic | QA Mathematics |
| url | http://irep.iium.edu.my/11551/ http://irep.iium.edu.my/11551/ http://irep.iium.edu.my/11551/1/ICBER2010_mimi.pdf |