The Paradoxical Prices of Options

Gianluca Marcato and Tumellano Sebehela
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Gianluca Marcato: Department of Real Estate & Planning, Henley Business School, University of Reading, Reading RG6 6UD, UK
Tumellano Sebehela: School of Construction Economics & Management, WITS University, Johannesburg 2050, South Africa

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2022, vol. 25, issue 02, 1-29

Abstract: The synchronized relationship between financial and fundamental prices has been topical for years now. It seems that option pricing theory has not been used to disentangle that relationship between two prices during merger and acquisition (M&A) activities. This paper uses Put-Call parity theorem to explore the divergence of financial and fundamental prices in any firm during the acquisition process. The results illustrate that price differentials are persistent; moreover, the differentials are caused by the exponential factor. Despite the fact that some principles are drawn from the real estate investment trust (REIT) literature, the results have wider implications for industries with similar traits to REITs.

Keywords: NAV; share price; Put-Call parity (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1142/S0219091522500096

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