Volatility Uncertainty, Time Decay, and Option Bid-Ask Spreads in an Incomplete Market
发现期权隐含波动率买卖价差随到期日临近加速扩大，通过构建市场微观结构模型解释该现象，并实证检验了波动率水平和方差效应，最后指出去趋势后的波动率价差能更好预测未来跳跃强度。
This paper documents the fact that in options markets, the (percentage) implied volatility bid-ask spread increases at an increasing rate as the option’s maturity date approaches. To explain this stylized fact, this paper provides a market microstructure model for the bid-ask spread in options markets. We first construct a static equilibrium model to illustrate the aforementioned phenomenon where risk averse and competitive option market makers quote bid and ask prices to minimize their inventory risk in an incomplete market with both directional and volatility risk. We extend this model to multiperiods and show that the same phenomenon occurs there as well. Two new implications are generated: a volatility level effect and a volatility variance effect. These implications are empirically tested, and the empirical results confirm the model’s validity. Finally, we document the importance of detrending the maturity effect by showing that the detrended percentage volatility spread explains future jump intensities better than the original percentage volatility spread. The online appendix is available at https://doi.org/10.1287/mnsc.2017.2867 . This paper was accepted by Neng Wang, finance.