Three Essays on Indian Equity Options Market

Abstract

“Are ‘options’ performative?” has incited much interest but also some puzzlement and considerable confusion among researchers. The purpose of this thesis is to examine from the focal point of performativity the economic significance of options with respect to the Indian market. Each state is critical in the economy in the sense that all of the states must be spanned (by contingent claims) to attain full Pareto efficiency (Ross, 1976). A sufficient condition for this to be true is that for each state there is some individual who values wealth in that state (and is not satiated) and the system should have ample opportunities to trade and price various kinds of risks (Malkiel, &Fama, 1970). The possibility of writing option contracts opens up new spanning opportunities. As there are only a finite number of marketed capital assets, stocks, bonds; which are referred as ‘primitives’, there can be infinite number of options or derivative that the primitives may generate. Therefore, to attain efficiency in competitive equilibrium in the absence of complete markets, simple options have considerable power to accomplish that(Ross, 1976). Also, options are associated with greater information production, lower transaction costs, greater financial leverage, an absence of short-sale constraints, and possibility to bet on volatility only (Back, 1993; Mayhew, Sarin, &Shastri, 1995)...