Box‐spread arbitrage efficiency of Nifty index options: The Indian evidence

Vipul,

doi:10.1002/fut.20376

Cited by 8 publications

(10 citation statements)

References 26 publications

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“…Nifty index options of the National Stock Exchange (NSE) India was found to be reasonably efficient. We expect the results of our study to be similar to Vipul's (2009) study regarding efficiency of the market. Table 1 summarizes the literature in context of internal market efficiency, option trading strategies and box spread arbitrage strategy.…”

Section: Marchand Et Al Chicago Mercantile 28 January 1983supporting

confidence: 83%

“…But, ban on short sales in the cash market of NSE India, would affect the efficiency negatively. It may cause an overpricing of put contracts owing to inefficient hedging [As highlighted by Bharadwaj and Wiggins (2001);Ofeket al (2004);Vipul (2009)]. Overall, based on the facilitating factors mentioned above, we expect higher efficiency for the Indian market in-spite of being a young market with order-driven market microstructure.…”

Section: Motivation For the Studymentioning

confidence: 90%

“…It was found that profit opportunities, after accounting and incorporating for transaction costs, was quite frequent, but, they did not persist even for 2 minutes. Vipul (2009) highlighted that violations of box-spread parity in the Indian market may be due to its young age. The fact that the arbitrage opportunities do not persist even for two minutes, indicates that the arbitrageurs do not ignore the mispricing for a long time.…”

Section: Marchand Et Al Chicago Mercantile 28 January 1983mentioning

confidence: 99%

“…This present study considers time-stamped transaction prices (to obviate nonsynchronicity) of Nifty options and gives a different picture compared to Vipul's work by considering and forming only those box spreads which can be exercised by traders i.e. the first box spread that can be formed and exercised while using box spread strategy in real-time scenario rather than taking into consideration all possible box spreads, which might or might not be exercised as considered by Vipul (2009) …”

Section: Motivation For the Studymentioning

confidence: 99%

“…Very few studies have tried to explore and investigate the efficiency of S&P CNX Nifty index options of NSE India (except Vipul 2009). In this study we examine the efficiency of European style S&P CNX Nifty index options of the Indian National Stock Exchange (NSE) by using time-stamped transactions data (i.e.…”

Section: Introductionmentioning

confidence: 99%

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Efficiency of S&P CNX Nifty Index Option of the National Stock Exchange (NSE), India, using Box Spread Arbitrage Strategy

Girish

Rastogi

2014

GADJAH MADA INT. J. BUS.

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Box spread is a trading strategy in which one simultaneously buys and sells options having the same underlying asset and time to expiration, but different exercise prices. This study examined the efficiency of European style S&P CNX Nifty Index options of National Stock Exchange, (NSE) India by making use of high-frequency data on put and call options written on Nifty (Time-stamped transactions data) for the time period between 1 st January 2002 and 31 st December 2005 using box-spread arbitrage strategy. The advantages of box-spreads include reduced joint hypothesis problem since there is no consideration of pricing model or market equilibrium, no consideration of inter-market non-synchronicity since trading box spreads involve only one market, computational simplicity with less chances of misspecification error, estimation error and the fact that buying and selling box spreads more or less replicates risk-free lending and borrowing. One thousand three hundreds and fifty eight exercisable boxspreads were found for the time period considered of which 78 Box spreads were found to be profitable after incorporating transaction costs (32 profitable box spreads were identified for the year 2002, 19 in 2003, 14 in 2004 and 13 in 2005) The results of our study suggest that internal option market efficiency has improved over the years for S&P CNX Nifty Index options of NSE India. Abstrak:Box spread adalah strategi trading dimana seseorang dapat secara simultan membeli dan menjual option yang memiliki dasar aset dan waktu berakhir yang sama, namun dengan harga latihan yang berbeda. Penelitian ini menguji efisiensi gaya Eropa S&P CNX Nifty Index Option pada Bursa Efek Nasional di India dengan memanfaatkan data frekuensi tinggi pada put dan call option yang tertulis di Nifty (data transaksi cap waktu) untuk periode antara 1 Januari sampai 1 Desember 2005 dengan menggunakan strategi arbritase box spread. Keuntungan dari box spread adalah berkurangnya masalah hipotesis gabungan karena tidak ada pertimbangan atas model harga atau ekuilibrium pasar modal, tidak ada pertimbangan atas non-sinkronitas antarpasar modal karena box spread perdagangan hanya meliputi satu pasar modal, kemudahan komputasional dengan berkurangnya kesalahan spesifikasi, kesalahan estimasi, dan fakta bahwa pembelian dan penjualan box spread kurang lebih menggandakan pinjam-meminjam yang bebas resiko. Sebanyak 1358 box spread ditemukan dan sebanyak 78 box spread dianggap menguntungkan setelah Acknowledgement

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Section: Marchand Et Al Chicago Mercantile 28 January 1983supporting

confidence: 83%

Section: Motivation For the Studymentioning

confidence: 90%

Section: Marchand Et Al Chicago Mercantile 28 January 1983mentioning

confidence: 99%

Section: Motivation For the Studymentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Efficiency of S&P CNX Nifty Index Option of the National Stock Exchange (NSE), India, using Box Spread Arbitrage Strategy

Girish

Rastogi

2014

GADJAH MADA INT. J. BUS.

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Options pricing and short‐selling in the underlying: Evidence from India

Dixit

Vipul

Singh³

2019

Journal of Futures Markets

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This study provides new insights into certain recent developments in derivatives trading in India. Specifically, it examines the implications of introduction of short‐selling for pricing efficiency of the Nifty 50 index derivative contracts of National Stock Exchange of India. The empirical results suggest that the introduction of short‐selling, supported by a well‐functioning security lending and borrowing market, has significantly reduced the overpricing of Nifty 50 index put options. Moreover, the introduction of this short‐selling mechanism has lessened the underpricing of Nifty 50 index futures.

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Options

Kakushadze¹,

Serur²

2018

151 Trading Strategies

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Box‐spread arbitrage efficiency of Nifty index options: The Indian evidence

Cited by 8 publications

References 26 publications

Efficiency of S&P CNX Nifty Index Option of the National Stock Exchange (NSE), India, using Box Spread Arbitrage Strategy

Efficiency of S&P CNX Nifty Index Option of the National Stock Exchange (NSE), India, using Box Spread Arbitrage Strategy

Options pricing and short‐selling in the underlying: Evidence from India

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