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On the behaviour of the Finnish stock index options markets

Author

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  • Vesa Puttonen

    (University of Vaasa)

Abstract

In this paper put-call-futures (PCF) parity and put-call-spot (PCS) parity are tested all the new Finnish stock index derivatives markets. Two levels of transaction costs are cOnsidered. Using daily closing price data, we find that, in particular, PCS parity is violated. The violations are due to the fact that the puts have been overpriced compared to the calls. The results suggest that the absence of an institutional framework for short selling of stocks is a factor contributing to discrepancies from price parities. Thus, option pricing in Finland is based on the futures price more than on the underlying index.

Suggested Citation

  • Vesa Puttonen, 1992. "On the behaviour of the Finnish stock index options markets," Finnish Economic Papers, Finnish Economic Association, vol. 5(2), pages 117-128, Autumn.
  • Handle: RePEc:fep:journl:v:5:y:1992:i:2:p:117-128
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    References listed on IDEAS

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    1. Galai, Dan, 1978. "Empirical tests of boundary conditions for CBOE options," Journal of Financial Economics, Elsevier, vol. 6(2-3), pages 187-211.
    2. Stoll, Hans R, 1969. "The Relationship between Put and Call Option Prices," Journal of Finance, American Finance Association, vol. 24(5), pages 801-824, December.
    3. Frankfurter, George M & Leung, Wai K, 1991. "Further Analysis of the Put-Call Parity Implied Risk-Free Interest Rate," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 14(3), pages 217-232, Fall.
    4. Levy, Haim, 1985. " Upper and Lower Bounds of Put and Call Option Value: Stochastic Dominance Approach," Journal of Finance, American Finance Association, vol. 40(4), pages 1197-1217, September.
    5. Robert C. Merton, 2005. "Theory of rational option pricing," World Scientific Book Chapters,in: Theory Of Valuation, chapter 8, pages 229-288 World Scientific Publishing Co. Pte. Ltd..
    6. Brenner, Menachem & Galai, Dan, 1986. "Implied Interest Rates," The Journal of Business, University of Chicago Press, vol. 59(3), pages 493-507, July.
    7. Bhattacharya, Mihir, 1983. "Transactions data tests of efficiency of the Chicago board options exchange," Journal of Financial Economics, Elsevier, vol. 12(2), pages 161-185, August.
    8. Cornell, Bradford & French, Kenneth R, 1983. " Taxes and the Pricing of Stock Index Futures," Journal of Finance, American Finance Association, vol. 38(3), pages 675-694, June.
    9. Gould, J. P. & Galai, D., 1974. "Transactions costs and the relationship between put and call prices," Journal of Financial Economics, Elsevier, vol. 1(2), pages 105-129, July.
    10. Phillips, Susan M. & Smith, Clifford Jr., 1980. "Trading costs for listed options : The implications for market efficiency," Journal of Financial Economics, Elsevier, vol. 8(2), pages 179-201, June.
    11. Stoll, Hans R, 1973. "The Relationship Between Put and Call Option Prices: Reply," Journal of Finance, American Finance Association, vol. 28(1), pages 185-187, March.
    12. Keim, Donald B., 1989. "Trading patterns, bid-ask spreads, and estimated security returns : The case of common stocks at calendar turning points," Journal of Financial Economics, Elsevier, vol. 25(1), pages 75-97, November.
    13. Klemkosky, Robert C & Resnick, Bruce G, 1979. "Put-Call Parity and Market Efficiency," Journal of Finance, American Finance Association, vol. 34(5), pages 1141-1155, December.
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    More about this item

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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