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The asymptotic design is of the infill type\u2014the mesh of the strike grid for the observed options shrinks asymptotically to zero, while the set of observation times and tenors for the option panel remains fixed. We propose a Portmanteau test for the null hypothesis of no spatial autocorrelation in the observation error. The test makes use of the smoothness of the true (unobserved) option price as a function of its strike and is robust to the presence of heteroskedasticity of unknown form in the observation error. A Monte Carlo study shows good finite-sample properties of the developed testing procedure and an empirical application to S&amp;P 500 index option data reveals mild spatial dependence in the observation error, which has been declining in recent years.<\/jats:p>","DOI":"10.1017\/s0266466620000183","type":"journal-article","created":{"date-parts":[[2020,4,13]],"date-time":"2020-04-13T08:15:44Z","timestamp":1586765744000},"page":"205-247","source":"Crossref","is-referenced-by-count":16,"title":["SPATIAL DEPENDENCE IN OPTION OBSERVATION ERRORS"],"prefix":"10.1017","volume":"37","author":[{"given":"Torben G.","family":"Andersen","sequence":"first","affiliation":[],"role":[{"role":"author","vocabulary":"crossref"}]},{"given":"Nicola","family":"Fusari","sequence":"additional","affiliation":[],"role":[{"role":"author","vocabulary":"crossref"}]},{"given":"Viktor","family":"Todorov","sequence":"additional","affiliation":[],"role":[{"role":"author","vocabulary":"crossref"}]},{"given":"Rasmus 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