Exercising of Options in the Australian Options Market
RL Brown, KA Rainbow
Australian Journal of Management | Published : 1981
Conditions defining rational and irrational exercising of options are presented and explained. These conditions are tested empirically by studying actual exercises in the Australian Options Market. It is found that two weak conditions are confirmed but the evidence on two strong conditions is mixed. Although most exercising appears to be consistent with the strong conditions, a significant number of exercises appear to violate them. Factors explaining these violations are not examined in detail, but it is suggested that transaction costs may be important. © 1981, SAGE Publications. All rights reserved.