An empirical test of 'put call parity'

Nissim Ben David and Tchai Tavor ()

Applied Financial Economics, 2011, vol. 21, issue 22, 1661-1664

Abstract: In this article, we examined the validity of 'Put Call Parity' (PCP) in the Israeli stock market. Estimating the parameters for the PCP equation, we reject the validity of PCP with a 100% confidence level. The estimated PCP equation includes a significant intercept that points to the possibility of having arbitrage opportunities. Measuring the profit rate for portfolios that include options with various exercise prices, we find a potential profit of about 3%-3.4% in all cases.

Keywords: put call parity; arbitrage (search for similar items in EconPapers)
Date: 2011
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DOI: 10.1080/09603107.2011.589806

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