Liquidity and Arbitrage in Options Markets: A SurvivalAnalysis Approach
This 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.
|Date of creation:||2007|
|Date of revision:|
|Publication status:||Published in Review of Finance / European Finance Review, 2007, 11 (3), pp.497-525|
|Note:||View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00162221|
|Contact details of provider:|| Web page: https://hal.archives-ouvertes.fr/|
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