This research work examines the possibility of a lack of liquidity in the Canadian equity options market. The analysis is based on two major markets in North America, the Chicago Board Option Exchange (CBOE) and the Montreal Exchange (MX). It highlights the different issues related to the analysis of the liquidity of a derivative product such as options. The study is conducted on exchange-traded funds (ETFs) that track the S&P 500 index and trade on these two exchanges respectively. To achieve this objective, several indicators measuring liquidity in the equity market were adapted to the options market. On almost all indicators, we find a higher liquidity on the US side than on the Canadian side, without however being able to identify the reasons for this disparity. This research also proposes a unique model based on multiple regression where the objective is to maximize the knowledge of the options pricing literature in order to obtain a better valuation of the option price. The difference between the actual market price and the price estimated by our model (i.e. The error term of the regression) is therefore a portion of the price unexplained by fundamental information. This can be explained by a lack of liquidity. Having based our price evaluations on too small a pool of option contracts, the coefficients of our regression are too high to ensure the reliability of the model as an investment tool. However, the results show that the model clearly outperforms any individual technique in terms of price discovery.
| Date | 7 Jan 2022 |
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| Original language | French |
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| Awarding Institution | - École de technologie supérieure
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| Supervisor | Edmond T. Miresco (Supervisor) |
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Croain-Poulette, D. (Author),
Miresco (Supervisor),
7 Jan 2022Student thesis: Master's thesis › Master in Engineering: Engineering