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Exploring arbitrage asymmetries in Hong Kong: Boundary violations and put-call links

Author

Listed:
  • Niu, Jing
  • Yue, Hao-Hao
  • Chang, Chao-Wen
  • Fu, Yuhao

Abstract

Amid accelerating economic globalization, increased exposure to market risks has intensified the demand for effective pricing and risk-sharing mechanisms in capital markets. The continued development of equity-linked financial instruments in China has contributed to greater market sophistication, improved price discovery, and enhanced capacity to cope with economic uncertainty. This paper investigates pricing regularities in Hong Kong’s individual equity-linked market using the theoretical foundations of boundary conditions and put-call parity. We design and implement arbitrage strategies based on these relationships across a sample of 20 instruments listed on the Hong Kong Stock Exchange. The deviations exhibit clear asymmetry: strategies exploiting call boundary conditions and long parity positions tend to be unprofitable, while those based on put boundary conditions and short parity positions consistently generate positive returns. These asymmetric patterns point to underlying frictions in price formation and affirm the relevance of classical pricing relations in detecting inefficiencies. It offers practical guidance for participants in globally connected equity markets.

Suggested Citation

  • Niu, Jing & Yue, Hao-Hao & Chang, Chao-Wen & Fu, Yuhao, 2026. "Exploring arbitrage asymmetries in Hong Kong: Boundary violations and put-call links," Economic Analysis and Policy, Elsevier, vol. 90(C), pages 1018-1027.
    • Handle: RePEc:eee:ecanpo:v:90:y:2026:i:c:p:1018-1027
    DOI: 10.1016/j.eap.2026.02.008
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    JEL classification:

    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services

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