Liquidity and Arbitrage in Options Markets: A SurvivalAnalysis Approach
AbstractThis paper examines the determinants of the time it takes for an index options market to return to no arbitrage values after put-call parity deviations, using intraday transactions data from the French index options market. We employ survival analysis to characterize how limits to arbitrage influence the expected duration of arbitrage deviations. After controlling for conventional limits to arbitrage, we show that liquidity-linked variables are associated with a faster reversion of arbitrage profits. The introduction of an ETF also affects the survival rates of deviations but this impact essentially stems from the reduction in the level of potential arbitrage profits.
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Bibliographic InfoPaper provided by HAL in its series Post-Print with number halshs-00162221.
Date of creation: 2007
Date of revision:
Publication status: Published, Review of Finance / European Finance Review, 2007, 11, 3, 497-525
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Limits to arbitrage; liquidity; survival analysis; index options; ETFs;
Other versions of this item:
- Laurent Deville & Fabrice Riva, 2007. "Liquidity and Arbitrage in Options Markets: A Survival Analysis Approach," Review of Finance, European Finance Association, vol. 11(3), pages 497-525.
- Riva, Fabrice & Deville, Laurent, 2007. "Liquidity and Arbitrage in Options Markets: A Survival Analysis Approach," Economics Papers from University Paris Dauphine 123456789/1381, Paris Dauphine University.
- D49 - Microeconomics - - Market Structure and Pricing - - - Other
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