The Pricing of SPI Futures Options with Daily Futures Style Margin Payments

Garry Twite
Additional contact information
Garry Twite: Australian Graduate School of Management, The University of New South Wales, Sydney NSW 2052; E-mail: gtwite@agsm unsw edu.au

Australian Journal of Management, 1996, vol. 21, issue 2, 139-157

Abstract: Empirical evidence on the pricing behaviour of options on index futures contracts traded on USA and UK futures markets reveals that pricing errors and implied volatility estimates differ systematically across exercise price and time to maturity. The introduction on 17 June 1985 of options on share price index futures contracts on the Sydney Futures Exchange, presents the opportunity to examine the pricing of pure futures options, that is, options with daily futures style margin payments. This paper examines the pricing of SPI futures options The results reveal that the pricing of SPI futures options is not well described by a pure futures option pricing model derived under the assumptions of frictionless markets and non-stochastic interest rates. The model underprices both call and put options. Further, implied volatility increases as the option becomes more in/out-of-the-money.

Keywords: FUTURES MARKET; FUTURES OPTIONS; OPTION PRICING (search for similar items in EconPapers)
Date: 1996
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://journals.sagepub.com/doi/10.1177/031289629602100203 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:21:y:1996:i:2:p:139-157

DOI: 10.1177/031289629602100203

Access Statistics for this article

More articles in Australian Journal of Management from Australian School of Business
Bibliographic data for series maintained by SAGE Publications ().