Options decimalization / by Faith Chin and Corey Garriott.: FB3-5/2016-57E-PDF

We document the outcome of an options decimalization pilot on Canada’s derivatives exchange. Decimalization improves measures of liquidity and price efficiency. The impact differs by the moneyness of an option and is greatest for out-of-the-money options. In contrast with equity studies, decimalization improved depth near the best prices and improved liquidity for larger trades. We conclude with advice on decimalizing options: options that benefit most have underlying volatility less than 40, underlying equity bid-ask spread less than 50 basis points, at least one trade a day, and a distribution of depth skewed toward marketable prices.

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Publication information
Department/Agency Bank of Canada.
Title Options decimalization / by Faith Chin and Corey Garriott.
Series title Staff working paper, 1701-9397 ; 2016-57
Publication type Series - View Master Record
Language [English]
Format Electronic
Electronic document
Note(s) "December 2016."
Includes bibliographic references.
Publishing information [Ottawa] : Bank of Canada, 2016.
Author / Contributor Chin, Faith.
Garriott, Corey.
Description ii, 31 p. : figures.
Catalogue number
  • FB3-5/2016-57E-PDF
Subject terms Capital markets
Regulation
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