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Author Li, Steven
Source CiteSeerX
Content type Text
File Format PDF
Subject Domain (in DDC) Computer science, information & general works ♦ Data processing & computer science
Subject Keyword Option Market ♦ Arbitrage Efficiency ♦ Put-call Parity Analysis ♦ Economic Study ♦ Regression Analysis ♦ Put-call Parity ♦ Nikkei Index Option Contract ♦ Strong Evidence ♦ Ex Ante Test ♦ Index Point ♦ Execution Lag ♦ Ose Member Firm ♦ Ex Ante Result ♦ Ex Post Profitable Arbitrage Strategy ♦ Sample Period ♦ Call Contract ♦ Modest Number ♦ Thorough Ex Post Analysis ♦ Average Profit ♦ Arbitrage Profitability ♦ Profitable Arbitrage Opportunity ♦ Average Arbitrage Profit ♦ Arbitrage Opportunity ♦ Osaka Security Exchange ♦ Pcp Equation
Abstract This paper is concerned with arbitrage efficiency of the Nikkei index option contracts traded on the Osaka Securities Exchange (OSE) within the put-call parity (PCP) framework. A thorough ex post analysis is first carried out. The results reveal a modest number of violations with 2.74 percent of the sample breaching the PCP equation and an average arbitrage profit of 22.61 index points for OSE member firms during the sample period (2003–05). Ex ante tests are then conducted whereby ex post profitable arbitrage strategies, signified by the matched put and call contracts, are executed with lags of one minute and three minutes. The ex ante results reveal that the number of profitable arbitrage opportunities and the average profit are both reduced significantly with an execution lag. In addition, regression analysis is used to provide further evidence about the PCP and arbitrage profitability. Overall, there is no strong evidence found against the efficiency of the Nikkei 225 options market, although arbitrage opportunities do exist occasionally.
Educational Role Student ♦ Teacher
Age Range above 22 year
Educational Use Research
Education Level UG and PG ♦ Career/Technical Study
Learning Resource Type Article