Stephen Figlewski Academic distinguished Finance scholar and Finance and Economics Consultant

Dr. Stephen Figlewski is a distinguished scholar in the field of finance and economics, with a Ph.D. in Economics from the Massachusetts Institute of Technology (MIT), awarded in 1976. His academic and professional journey reflects a deep commitment to the advancement of financial theory and practice.

Dr. Figlewski has held several prominent positions in both academia and industry. He served as a full-time consultant in Multi-asset Quantitative Research at Citigroup in New York from September 2004 to December 2005. Prior to this, he was Vice President of Equity Derivative Products Research at First Boston Corporation, New York, during 1987-1988. His academic roles include a tenure as Visiting Associate Professor at the University of California, Berkeley, from 1982 to 1983, and a Teaching Assistant at MIT from 1974 to 1976. He also served as an Administrator, Grade A-2, at the Organization for Economic Cooperation and Development (OECD) in Paris, France, from 1969 to 1972.

• Doctor of Philosophy (Ph.D in Economics)
  Massachusetts Institute of Technology Cambridge, Massachusetts

• Full-time Consultant, Multi-asset Quantitative Research (Citigroup)
  New York
• Vice President, Equity Derivative Products Research (First Boston Corporation)
  New York
• Visiting Associate Professor (Univ. of California, Berkeley)
  California
• "Administrator (Organization for Economic Cooperation and Development)
  Paris, France

Option Investor Rationality Revisited: The Role of Exercise Boundary Violations

Do option investors rationally exercise their options? Numerous studies report evidence of irrational behavior. In this paper, we pay careful attention to intraday option quotes and reach the opposite conclusion. An exercise boundary violation (EBV) occurs when the best bid price for an American option is below the option’s intrinsic value. Far from being unusual, we show that EBVs occur very frequently. Under these conditions, the rational response of an investor liquidating an option is to exercise the option rather than sell it. Empirically, we find that the likelihood of early exercise is strongly influenced by the existence and duration of EBVs. Not only do these results reverse standard theory on American option valuation and optimal exercise strategy, but they also suggest that the ability to avoid selling at an EBV price creates an additional source of value for American options that is unrelated, and in addition to, dividend payments. This additional value may help explain why American options appear overpriced relative to European options.

Academic Stephen Figlewski Jun 2024 Derivatives 166