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American futures options arbitrage: evidence from the Nikkei 225 options market

Author

Listed:
  • Changyun Wang
  • Wei Zhang
  • Weng Kit Tan

Abstract

Previous studies have examined the profitability of European index options arbitrage. This paper adds to the literature by investigating the arbitrage profitability of American index options—the Nikkei 225 index futures options traded on the Singapore Stock Exchange (SGX). Using the real-time bid-ask prices, we find evidence of profitable arbitrage opportunities, while the frequency of observations violating no-arbitrage bounds and the magnitude of arbitrage profits decrease with the level of transaction costs. Our results have implications for the analysis of American options market efficiency. Failure to use bid-ask prices may lead to biased conclusions.

Suggested Citation

  • Changyun Wang & Wei Zhang & Weng Kit Tan, 2008. "American futures options arbitrage: evidence from the Nikkei 225 options market," Quantitative Finance, Taylor & Francis Journals, vol. 8(3), pages 313-320.
    • Handle: RePEc:taf:quantf:v:8:y:2008:i:3:p:313-320
    DOI: 10.1080/14697680701400671
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