Market impact: a systematic study of the high frequency options market

• Published in: Quantitative finance Vol. 21; no. 1; pp. 69 - 84
• Main Authors: Said, Emilio, Bel Hadj Ayed, Ahmed, Thillou, Damien, Rabeyrin, Jean-Jacques, Abergel, Frédéric
• Format: Journal Article
• Language: English
• Published: Bristol Routledge 2021; Taylor & Francis Ltd; Taylor & Francis (Routledge)
• Subjects: Automated trading; Computational Finance; Fair pricing; High frequency; Implied volatility; Limit orders; Market impact; Market microstructure; Options market; Options markets; Quantitative Finance; Statistical finance; Trading and Market Microstructure; Automated Trading; Fair Pricing; Market Impact; Statistical Finance; Market Microstructure; High Frequency; Options Market; Implied Volatility; Limit Orders
• ISSN: 1469-7688; 1469-7696; 1469-7696
• DOI: 10.1080/14697688.2020.1791948

This paper deals with a fundamental subject that has seldom been addressed in recent years, that of market impact in the options market. Our analysis is based on a proprietary database of metaorders-large orders that are split into smaller pieces before being sent to the market-on one of the main Asian markets. In line with our previous work on the equity market [Said, E., Bel Hadj Ayed, A., Husson, A. and Abergel, F., Market impact: A systematic study of limit orders. Mark. Microstruct. Liq., 2018, 3(3&4), 1850008.], we propose an algorithmic approach to identify metaorders, based on some implied volatility parameters, the at the money forward volatility and at the money forward skew. In both cases, we obtain results similar to the now well-understood equity market: Square-Root Law, Fair Pricing Condition and Market Impact Dynamics.