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University of Cambridge > Talks.cam > Cambridge Finance Workshop Series > Product Market Competition and Option Prices
Product Market Competition and Option PricesAdd to your list(s) Download to your calendar using vCal
If you have a question about this talk, please contact CERF/CF Admin. Most firms face some form of competition in product markets. The degree of competition a firm faces feeds back into its cash flows and affects the values of the securities it issues. We demonstrate that, through its effects on stock prices, product market competition also affects the prices of options on equity and naturally leads to an inverse relationship between equity returns and volatility, generating a negative volatility skew in option prices. Using a large sample of U.S. equity options, we provide empirical support for this finding and demonstrate the importance of accounting for product market competition when explaining the cross-sectional variation in option skew. This talk is part of the Cambridge Finance Workshop Series series. This talk is included in these lists:
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