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The Arbitrage Efficiency of the Nikkei 225 Options Market: A Put-Call Parity Analysis


  • Steven Li

    (University of South Australia, Division of Business (E-mail:


This paper is concerned with arbitrage efficiency of the Nikkei index option contracts traded on the Osaka Securities Exchange ( OSE) within the put-call parity (PCP) framework. A thorough ex post analysis is first carried out. The results reveal a modest number of violations with 2.74 percent of the sample breaching the PCP equation and an average arbitrage profit of 22.61 index points for OSE member firms during the sample period (2003?05). Ex ante tests are then conducted whereby ex post profitable arbitrage strategies, signified by the matched put and call contracts, are executed with lags of one minute and three minutes. The ex ante results reveal that the number of profitable arbitrage opportunities and the average profit are both reduced significantly with an execution lag. In addition, regression analysis is used to provide further evidence about the PCP and arbitrage profitability. Overall, there is no strong evidence found against the efficiency of the Nikkei 225 options market, although arbitrage opportunities do exist occasionally.

Suggested Citation

  • Steven Li, 2006. "The Arbitrage Efficiency of the Nikkei 225 Options Market: A Put-Call Parity Analysis," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 24(2), pages 33-54, November.
  • Handle: RePEc:ime:imemes:v:24:y:2006:i:2:p:33-54

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    References listed on IDEAS

    1. Evnine, Jeremy & Rudd, Andrew, 1985. " Index Options: The Early Evidence," Journal of Finance, American Finance Association, vol. 40(3), pages 743-756, July.
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    More about this item


    Put-call parity; Market efficiency; Nikkei 225 options;

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading


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