In this paper, we show that theoretically derived LDV is related to trading volume as standard proxy of liquidity measure and LDV in ITM options exhibit a U-shaped pattern across moneyness. Other findings are that the expected returns from the synthetic futures arbitrage trading considering liquidity premium exhibit a U-shaped pattern across moneyness and it depends on the maturity. This means that the longer days remaining to expiration date, the greater the incentive for arbitrage trading.
Son, K.-W. and Kim, S.-S. (2014), "Liquidity Discount Value of ITM Option", Journal of Derivatives and Quantitative Studies: 선물연구, Vol. 22 No. 4, pp. 699-722. https://doi.org/10.1108/JDQS-04-2014-B0005
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