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Nonsimultaneity and Futures Option Pricing: Simulation and Empirical Evidence

Listed author(s):
  • Robert E.J. Hibbard
  • Rob Brown
  • Keith R. McLaren


Empirical tests of option pricing models are joint tests of the 'correctness' of the model, the efficiency of the market and the simultaneity of price observations. Some degree of nonsimultaeity can be expected in all but the most liquid markets and is therefore evident in many non-US markets. Simulation results indicate that nonsimultaneity is potentially a significant problem in empirical tests of futures option pricing models. Empirical results using Australian data show that a five-minute window for matching transactions does not remove the nonsimultaneity bias for near-the-money and out-of-the money options. A more accurate matching may therefore be required. The nonsimultaneity bias is effectively removed if a five-minute window is employed for in-the-money options.

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Paper provided by Monash University, Department of Econometrics and Business Statistics in its series Monash Econometrics and Business Statistics Working Papers with number 13/02.

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Length: 39 pages
Date of creation: Dec 2002
Handle: RePEc:msh:ebswps:2002-13
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  1. Whaley, Robert E., 1982. "Valuation of American call options on dividend-paying stocks : Empirical tests," Journal of Financial Economics, Elsevier, vol. 10(1), pages 29-58, March.
  2. Galai, Dan, 1977. "Tests of Market Efficiency of the Chicago Board Options Exchange," The Journal of Business, University of Chicago Press, vol. 50(2), pages 167-197, April.
  3. Ramaswamy, Krishna & Sundaresan, Suresh M, 1985. " The Valuation of Options on Futures Contracts," Journal of Finance, American Finance Association, vol. 40(5), pages 1319-1340, December.
  4. Bookstaber, Richard M, 1981. "Observed Option Mispricing and the Nonsimultaneity of Stock and Option Quotations," The Journal of Business, University of Chicago Press, vol. 54(1), pages 141-155, January.
  5. Stephen A. Easton, 1994. "Non-simultaneity and Apparent Option Mispricing in Tests of Put-Call Parity," Australian Journal of Management, Australian School of Business, vol. 19(1), pages 47-60, June.
  6. Christine A. Brown, 1999. "The Volatility Structure Implied by Options on the SPI Futures Contract," Australian Journal of Management, Australian School of Business, vol. 24(2), pages 115-130, December.
  7. Whaley, Robert E, 1986. " Valuation of American Futures Options: Theory and Empirical Tests," Journal of Finance, American Finance Association, vol. 41(1), pages 127-150, March.
  8. Brooks, Raymond M. & Chiou, Shur-Nuaan, 1995. "A Bias in Closing Prices: The Case of the When-Issued Pricing Anomaly," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(03), pages 441-454, September.
  9. Manaster, Steven & Rendleman, Richard J, Jr, 1982. " Option Prices as Predictors of Equilibrium Stock Prices," Journal of Finance, American Finance Association, vol. 37(4), pages 1043-1057, September.
  10. Vijh, Anand M, 1988. " Potential Biases from Using Only Trade Prices of Related Securities on Different Exchanges: A Comment," Journal of Finance, American Finance Association, vol. 43(4), pages 1049-1055, September.
  11. Black, Fischer, 1976. "The pricing of commodity contracts," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 167-179.
  12. Long, D Michael & Officer, Dennis T, 1997. "The Relation between Option Mispricing and Volume in the Black-Scholes Option Model," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 20(1), pages 1-12, Spring.
  13. Brown, C. A. & Taylor, S. D., 1997. "A test of the Asay model for pricing options on the SPI futures contract," Pacific-Basin Finance Journal, Elsevier, vol. 5(5), pages 579-594, December.
  14. Chiras, Donald P. & Manaster, Steven, 1978. "The information content of option prices and a test of market efficiency," Journal of Financial Economics, Elsevier, vol. 6(2-3), pages 213-234.
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