We understood that:  1. Credit risk 2. Operational risk and 3. liquidity risk in the Over The Counter (OTC) market  prevent many investors from trading in that market. Therefore, the CBOE has created the Option Clearing Corporation (OCC) which gives options holders the absolute guarantee: that any holder of an exchange traded option will always be able to exercise it if he/she so desires. We believe that this guaranty, together with our contracts standardization, eliminate all the above three risks."

Explain in detail what is liquidity and How does the OCC's absolute guarantee, together with the contracts standardization, create liquidity in the market.

Answer rating: 100% (QA)

Liquidity refers to the ease with which an asset or security can be bought or sold in the market wit... View the full answer