Cross‐market efficiency in the Indian derivatives market: A test of put–call parity

Vipul,

doi:10.1002/fut.20325

Cited by 22 publications

(18 citation statements)

References 26 publications

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“…The higher mispricing in more volatile markets reflects the apprehension of arbitrageurs of not being able to implement the arbitrage transactions at the desired price. The findings of this study are in line with those of Kamara and Miller, Ackert and Tian (2001), Draper andFung (2002), andVipul (2008), who found the mispricing to increase with volatility in the context of put-call parity.…”

Section: Volatilitysupporting

confidence: 92%

“…This confirms the widespread overpricing of put contracts owing to the restriction on short sales. This phenomenon is also corroborated by Vipul (2008) for the Indian market. However, this systemic overpricing of put contracts does not cause significant mispricing in box spreads owing to its mutual cancellation in the term (P H ϪP L ).…”

supporting

confidence: 78%

“…(4) where S t is the spot price of Nifty. Kamara and Miller, Ackert and Tian (2001), Draper and Fung (2002), and Vipul (2008) found the mispricing to increase with volatility in the context of put-call parity. Therefore, it is suspected that the mispricing may also depend on the volatility of Nifty.…”

Section: Methodsmentioning

confidence: 96%

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

Vipul

2009

Journal of Futures Markets

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This study examines the market efficiency for the European style Nifty index options using the box-spread strategy. Time-stamped transactions data are used to identify the mispricing and arbitrage opportunities for options with this modelfree approach. Profit opportunities, after accounting for the transaction costs, are quite frequent, but do not persist even for two minutes. The mispricing is higher for the contracts with higher liquidity (immediacy) risk captured by the moneyness (the difference between the strike prices and the spot price) and the volatility of the underlying.

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Section: Volatilitysupporting

confidence: 92%

supporting

confidence: 78%

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

Vipul

2009

Journal of Futures Markets

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“…The positive intercept is strongly significant that suggests that call options are systematically overpriced relative to puts, ceteris paribus. This result is contrast to Mittnik's study [9] or Vipul's result [10] in which put options are systematically overpriced more often and more significant. However, by adding dum_ban variable -there are some changes in economic interpretation:…”

Section: Statistical Tests Of Pcpcontrasting

confidence: 92%

Empirical Test of Put-Call Parity on SPX Over the Short Ban 2008

Phuc¹

2017

PaM

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Abstract:Put call parity is a theoretical no-arbitrage condition linking a call option price to a put option price written on the same stock or index. This study finds that Put call parity violations are quite symmetric over the whole sample. However during the ban period 2008 in the U.S., puts are significantly and economically overpriced relative to calls. Some possible explanations are the short selling restriction, momentum trading behaviour and the changes in supply and demand of puts over the short ban. One interesting finding is that the relationship between time to expiry, put call parity deviations and returns on the index is highly non-linear.

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“…Therefore, it would be reasonable to use the feedback of trading member organizations in this regard. Moreover, it may be noted that some of the studies on F&O segment (e.g., Vipul, 2008, a study in the Indian context) have estimated the transaction costs on the same lines. Based on the responses from the trading member firms, a consensus was arrived at an estimate of brokerage, viz., 0.05 per cent (including service taxes) of '(strike price + premium)*lot size' for options contracts and 'Futures price at the time of the transaction*lot size' for futures contracts in the case of retail investors throughout the period under reference.…”

Section: Transaction Costsmentioning

confidence: 99%

Testing Lower Boundary Conditions for Index Options Using Futures Prices: Evidences from the Indian Options Market

Dixit¹,

Yadav²,

Jain³

2011

Vikalpa

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Options are the contracts which serve as a tool for risk hedging, price discovery, and better allocation of capital. The efficiency of an options market, i.e., the correctness of option prices denotes that it is working well at its well-identified functions (Ackert and Tian, 2000). In view of this, the efficiency of options market has been of equal interest to the academics as well as practitioners and a number of studies on efficiency of options market have been carried out across the globe in different options markets.The present paper attempts to assess the pricing efficiency of the S&P CNX Nifty index options in India by testing the Lower Boundary Conditions (LBCs) using futures prices instead of spot values. The methodology adopted essentially tests a joint market efficiency hypothesis of index options and index futures. This has been done in view of the fact that the use of futures markets helps in doing away with the short-selling constraint as futures can easily be shorted. And, it becomes a natural choice for analysis as the short-selling has been banned in the Indian securities market during the period under reference. Moreover, the use of futures markets, to a marked extent, helps in ensuring the exploitability of arbitrage opportunities when underlying asset is an index.The study covers a period of six years from June 4, 2001 (starting date for index options in India) to June 30, 2007. The major findings of the study are:• The put options market is more efficient than the call options market, given the existing market microstructure in India during the period under reference.• Another equally important finding is that the put options market showed an improvement in the pricing efficiency over the years whereas the call options market demonstrated a counterintuitive and adverse development. • However, the profit potential offered by highly traded opportunities both in the cases of call and put options seems to be unexploitable in the presence of transaction costs.• Moreover, the dearth of liquidity in the case of otherwise exploitable opportunities which carry higher profit potentials has been the main inhibiting factor to arbitrageurs.Therefore, in short, it is reasonable to conclude that majority of violations in call as well as put options could not be exploited on account of the existing market-microstructure in India during the period under reference (especially short-selling constraint that caused underpricing in futures to persist) and the dearth of liquidity in the options market. In other words, the revealed state of options pricing can be designated to the short-selling constraints and dearth of liquidity.

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Cross‐market efficiency in the Indian derivatives market: A test of put–call parity

Cited by 22 publications

References 26 publications

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

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

Empirical Test of Put-Call Parity on SPX Over the Short Ban 2008

Testing Lower Boundary Conditions for Index Options Using Futures Prices: Evidences from the Indian Options Market

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