 Violations of put-call parity for CNX Nifty index options: a study at National Stock ExchangeTanuj Nandan and Puja Agrawal Global Business and Economics Review, 2018, vol. 20, issue 4, 485-502 Abstract: Derivatives markets provide a platform for market participants to hedge their risk, and aid price discovery. Correct pricing of derivatives instruments is imperative in the performance of these functions. In the present study, an attempt has been made to examine the valuation of CNX Nifty index options in terms of put-call parity (PCP) relationship, over a ten-year period. Since PCP is a no-arbitrage-based argument, it does not suffer from the limitations that are inevitable while gauging pricing efficiency using model-based approaches. Various error estimates, supported by non-parametric tests have been used validate our results statistically. Our findings indicate frequent violations of PCP, though the magnitude of mispricing is small. Further, the results are charted across moneyness, days-to-expiry and liquidity. The present study can be extremely important for all stakeholders, as violation of PCP leads to risk-free profitable arbitrage, which is an antithesis to efficient markets. Keywords: derivatives; put-call parity; PCP; no-arbitrage; index options; CNX Nifty; pricing efficiency; mispricing; error estimates; non-parametric tests; moneyness. (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ids:gbusec:v:20:y:2018:i:4:p:485-502 Access Statistics for this article More articles in Global Business and Economics Review from Inderscience Enterprises Ltd |
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