tailieunhanh - Empirical test of put - call parity on the standard and poor’s500 index options (SPX) over the short ban 2008

Put call parity is a theoretical no-arbitrage condition linking a call option price to a put option price written on the same stock or index. This study finds that Put call parity violations arequite symmetric over the whole sample. However during the ban period 2008 in the ., puts aresignificantly and economically overpriced relative to calls. | VNU Journal of Science: Policy and Management Studies, Vol. 33, No. 2 (2017) 46-60 Empirical Test of Put - call Parity on the Standard and Poor’s 500 Index Options (SPX) over the Short Ban 2008 Do Phuong Huyen* VNU International School, Building G7, 144 Xuan Thuy, Cau Giay, Hanoi, Vietnam Received 15 March 2017; Revised 11 June 2017; Accepted 28 June 2017 Abstract: Put call parity is a theoretical no-arbitrage condition linking a call option price to a put option price written on the same stock or index. This study finds that Put call parity violations are quite symmetric over the whole sample. However during the ban period 2008 in the ., puts are significantly and economically overpriced relative to calls. Some possible explanations are the short selling restriction, momentum trading behaviour and the changes in supply and demand of puts over the short ban. One interesting finding is that the relationship between time to expiry, put call parity deviations and returns on the index is highly non-linear. Keywords: Put-call parity, SPX, short ban 2008. 1. Introduction c + K*exp (-r ) = p + St (1) Where: c and p are the current prices of a call and put option, respectively K: the strike price St:the current price of the underlying r: the risk free rate : time to expiry If the relationship does not hold, there are two strategies used to eliminate arbitrage opportunities. Consider the following two portfolios. Portfolio A: one European call option plus an amount of cash equal to K*exp (-r ) Portfolio B: one European put option plus one share Section one gives a background to Put call parity (henceforth, PCP) and reviews relevant literature. Section two is the data part and the methodology adopted in the research. Section three discusses the empirical evidence. Section four investigates the link between PCP violations, trading momentum behaviour and explains others possible reasons. The final part makes some concluding remarks. PCP condition was given in [1] .