The paper "Listing of classical options and the pricing of discount certificates” by FiRe member Andrea Schertler has been accepted for publication in the Journal of Banking and Finance.
In this paper, I investigate whether new listings of EUREX options affect the prices of discount certificates that are replicated with precisely such a newly listed option. An event study provides a significantly negative average abnormal margin change on the day on which the EUREX option of the replication portfolio is listed. I model the abnormal margin changes as a function of hedging cost, unhedgeable risk, and price pressure. Higher hedging costs, higher opportunity costs from unhedgeable risk, and lower intra-EUWAX competition lead to significantly lower abnormal margin changes. I interpret the effect of intra-EUWAX competition as a price pressure effect. Economically, rebalancing and opportunity costs from unhedgeable risk are the most important drivers of abnormal margin changes when EUREX options are listed.