Implied transaction costs by Leland option pricing model: a new approach and empirical evidence

Estimation of transaction costs in a stock market is an important issue for stock trading, asset pricing, stock market regulation and so on, and it is often done by combining the bid-ask spread estimate with commissions and other fees provided by market participants, which can be subjective. This s...

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Main Authors:	Li, Steven, Abdullah, Mimi Hafizah
Format:	Article
Language:	English English
Published:	Macmillan Publishers Ltd. 2012
Subjects:	HG4001 Financial management. Business finance. Corporation finance.
Online Access:	http://irep.iium.edu.my/28536/ http://irep.iium.edu.my/28536/ http://irep.iium.edu.my/28536/ http://irep.iium.edu.my/28536/1/jdhf201212a.pdf http://irep.iium.edu.my/28536/4/scopus.pdf

id	iium-28536
recordtype	eprints
spelling	iium-285362014-11-28T03:43:48Z http://irep.iium.edu.my/28536/ Implied transaction costs by Leland option pricing model: a new approach and empirical evidence Li, Steven Abdullah, Mimi Hafizah HG4001 Financial management. Business finance. Corporation finance. Estimation of transaction costs in a stock market is an important issue for stock trading, asset pricing, stock market regulation and so on, and it is often done by combining the bid-ask spread estimate with commissions and other fees provided by market participants, which can be subjective. This study aims to offer an innovative alternative method to estimate the transaction costs in stock trading via the implied transaction costs by using the Leland option pricing model. The effectiveness of this new approach is tested by using the S&P/ASX 200 index call options data. On the basis of the actual transaction costs estimates on the Australian Securities Exchange (ASX) documented by previous studies and Roll’s model, the empirical results reveal that this new approach can provide a reliable transaction costs estimate on stock trading on the ASX. Furthermore, the accuracy of the implied transaction costs across option moneyness and maturity and the variation of the implied transaction costs during the recent global financial crisis period are investigated. Macmillan Publishers Ltd. 2012-11 Article PeerReviewed application/pdf en http://irep.iium.edu.my/28536/1/jdhf201212a.pdf application/pdf en http://irep.iium.edu.my/28536/4/scopus.pdf Li, Steven and Abdullah, Mimi Hafizah (2012) Implied transaction costs by Leland option pricing model: a new approach and empirical evidence. Journal of Derivatives & Hedge Funds, 18 (4). pp. 333-360. ISSN 1753-9641 (Print)1753-965X (Online) http://www.palgrave-journals.com/jdhf/journal/v18/n4/full/jdhf201212a.html 10.1057/jdhf.2012.12
repository_type	Digital Repository
institution_category	Local University
institution	International Islamic University Malaysia
building	IIUM Repository
collection	Online Access
language	English English
topic	HG4001 Financial management. Business finance. Corporation finance.
spellingShingle	HG4001 Financial management. Business finance. Corporation finance. Li, Steven Abdullah, Mimi Hafizah Implied transaction costs by Leland option pricing model: a new approach and empirical evidence
description	Estimation of transaction costs in a stock market is an important issue for stock trading, asset pricing, stock market regulation and so on, and it is often done by combining the bid-ask spread estimate with commissions and other fees provided by market participants, which can be subjective. This study aims to offer an innovative alternative method to estimate the transaction costs in stock trading via the implied transaction costs by using the Leland option pricing model. The effectiveness of this new approach is tested by using the S&P/ASX 200 index call options data. On the basis of the actual transaction costs estimates on the Australian Securities Exchange (ASX) documented by previous studies and Roll’s model, the empirical results reveal that this new approach can provide a reliable transaction costs estimate on stock trading on the ASX. Furthermore, the accuracy of the implied transaction costs across option moneyness and maturity and the variation of the implied transaction costs during the recent global financial crisis period are investigated.
format	Article
author	Li, Steven Abdullah, Mimi Hafizah
author_facet	Li, Steven Abdullah, Mimi Hafizah
author_sort	Li, Steven
title	Implied transaction costs by Leland option pricing model: a new approach and empirical evidence
title_short	Implied transaction costs by Leland option pricing model: a new approach and empirical evidence
title_full	Implied transaction costs by Leland option pricing model: a new approach and empirical evidence
title_fullStr	Implied transaction costs by Leland option pricing model: a new approach and empirical evidence
title_full_unstemmed	Implied transaction costs by Leland option pricing model: a new approach and empirical evidence
title_sort	implied transaction costs by leland option pricing model: a new approach and empirical evidence
publisher	Macmillan Publishers Ltd.
publishDate	2012
url	http://irep.iium.edu.my/28536/ http://irep.iium.edu.my/28536/ http://irep.iium.edu.my/28536/ http://irep.iium.edu.my/28536/1/jdhf201212a.pdf http://irep.iium.edu.my/28536/4/scopus.pdf
first_indexed	2023-09-18T20:42:03Z
last_indexed	2023-09-18T20:42:03Z
_version_	1777409430806069248

Implied transaction costs by Leland option pricing model: a new approach and empirical evidence

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