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Hard to borrow stocks- does option pricing need adjustment for them?
In that case you would have to include the cost of carry. But who would hedge Z options with H futures?
Hard to borrow stocks- does option pricing need adjustment for them?
QuoteOriginally posted by: MikeNNIn that case you would have to include the cost of carry. But who would hedge Z options with H futures?who wouldn't ? most open interest is in front month ... you hedge your delta with the most liquid and worry about the forward price term structure in some other way.
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Hard to borrow stocks- does option pricing need adjustment for them?
thanks all for the reply, fyi, think some of the asian indices have quarterly futures contract with monthly options in the first 3 months, so I would be leaning towards adding the borrowing cost. I was referring to cash settled options on the actual index rather than options on the futures (index futures)hopefully I get enough market prices to verify. I was googling around just after posting the question and I found this article http://www.risk.net/risk-magazine/news/ ... strategies about negative repos causing the Nikkei forwards to distort, guess either way, I'll need to put some borrow cost in there.thanks again.