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Implied transaction costs by leland option pricing models: A new approach and empirical evidence

Abdullah, Mimi Hafizah and Li, Steven (2011) Implied transaction costs by leland option pricing models: A new approach and empirical evidence. In: 2011 Accounting and Finance Association of Australia and New Zealand (AFAANZ) Conference, 3-5 July 2011, Darwin, Australia. (Unpublished)

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Estimation of transaction costs in stock market is an important issue for stock trading, asset pricing, andstock market regulation etc. and it is often done by combining the bid-ask spread estimate with commissions and other fees provided by market participants which can be subjective. This study aims to offer an innovative way as an alternative to estimate the total transaction costs in stock trading via the implied transaction costs by using the Leland option pricing models. The effectiveness of this new approachis tested by using the S&P/ASX 200 index call options data.Based on the actual transaction costs on the Australian Securities Exchange (ASX) documented by previous studies and the Roll’s model,the empirical results reveal that this new approach can provide a reliable transaction costs estimate on stock trading in the ASX.Furthermore, the accuracy of the implied transaction costs and across option moneyness and maturity is investigated.

Item Type: Conference or Workshop Item (Full Paper)
Additional Information: 4482/11565
Subjects: Q Science > QA Mathematics
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button): Kulliyyah of Science > Department of Computational and Theoretical Sciences
Depositing User: Ms Mimi Hafizah Abdullah
Date Deposited: 04 Jan 2012 12:43
Last Modified: 04 Jan 2012 12:43
URI: http://irep.iium.edu.my/id/eprint/11565

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