Insider and liquidity trading in stock and options markets.

Summary This paper analyzes the impact of introducing a non-redundant option on information disclosure and risk sharing. The option changes the interaction between liquidity and information asymmetry. By improving risk-sharing opportunities, the option reduces the risk of market collapse created by information asymmetry. On the other hand, the option does not necessarily lead to an improvement in the informational efficiency of the market, or to an increase in the profits of informed agents.