Adam Smith Business School

Dr Mariana Khapko, University of Toronto

"Asymmetries and the Market for Put Options"
Wednesday, 24 May. 14:00
Wards Library, Main Building

Abstract

We study implications of asymmetries in both preferences and fundamentals for put option demand across investors and the resulting market behavior. A heterogenous-agent model populated by investors with asymmetric preferences alongside standard risk-averse agents rationalizes the size and the dynamics of the put option market, the expensiveness of put options, and the link between put option demand and the stock market in equilibrium. Disappointment-averse investors take long positions in put options, but only if their reference point is lower than the certainty equivalent. In the cross-section of options with multiple strikes, disappointment-averse investors’ open interest peaks for the at-the-money contracts.

Bio

Mariana Khapko is an Assistant Professor of Finance at the University of Toronto, Canada. Mariana holds a PhD in Finance from the Stockholm School of Economics and is an affiliated Research Fellow of the Swedish House of Finance. Her research interests are focused on asset pricing, portfolio choice, behavioral finance, and the microstructure of financial markets.

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For further information, please contact business-school-research@glasgow.ac.uk

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First published: 14 April 2023