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An Empirical Test of Efficiency of Exchange-Traded Currency Options in India

Author

Listed:
  • Bhat, Aparna

    (K.J. Somaiya Institute of Management Studies and Research)

  • Arekar, Kirti

    (K.J. Somaiya Institute of Management Studies and Research)

Abstract

The objective of this paper is to examine efficiency of the exchange-traded currency options market in India. Put-call-futures parity for the USD-INR currency options is studied by analyzing daily closing prices of options and futures for thirty two months on the National Stock Exchange. The study reveals frequent violations of the put-call-futures parity creating significant arbitrage opportunities. The pattern of mispricing varies when examined for time to maturity, option moneyness, liquidity and volatility of the underlying asset. These observations are consistent with those of studies of other young markets.

Suggested Citation

  • Bhat, Aparna & Arekar, Kirti, 2015. "An Empirical Test of Efficiency of Exchange-Traded Currency Options in India," Business and Economics Research Journal, Uludag University, Faculty of Economics and Administrative Sciences, vol. 6(4), pages 1-17, October.
    • Handle: RePEc:ris:buecrj:0200
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    More about this item

    Keywords

    Put-call parity; efficient markets; currency options;
    All these keywords.

    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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