Short selling recall option pricing: empirical and theoretical approaches

• Ano de defesa: 2016
• Autor(a) principal: Almeida, Leonardo Viana de
• Tipo de documento: Dissertação
• Tipo de acesso: Acesso aberto
• Idioma: eng
• Instituição de defesa: Biblioteca Digitais de Teses e Dissertações da USP
• Palavras-chave em Português: Ações; Aluguel de ações; Econometria; Economia de mercado; Microfinanças; Modelo teórico; Option pricing; Precificação de opções; Regressão analítica; Regression analysis; Short selling; Stock lending; Theoretical model; Venda descoberta
• Link de acesso: http://www.teses.usp.br/teses/disponiveis/12/12138/tde-22112016-114644/

Short selling is important for price efficiency as it helps negative information to be incorporated into prices. As short selling requires borrowing stock in advance, the equity lending market plays a central role in price efficiency. For instance, when the costs of borrowing certain equities are high, these stocks are likely to be overpriced. Unfortunately, not much is known about the equity lending market, particularly the Brazilian market. Here, we have investigated a particular feature of the equity lending contract, namely, the lender recall option. Lending contracts either i) allow the lender to recall the stock at an earlier date than initially agreed, or ii) allow no early recall, that is, they are fixed term contracts. We have derived a simple model for recall option pricing and confirmed the model empirically