Econometric modeling for transaction cost-adjusted put-call parity: evidence from the currency options market
Article
Article Title | Econometric modeling for transaction cost-adjusted put-call parity: evidence from the currency options market |
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ERA Journal ID | 18552 |
Article Category | Article |
Authors | |
Author | Hoque, Ariful |
Journal Title | International Research Journal of Finance and Economics |
Number of Pages | 9 |
Year | 2010 |
Place of Publication | London, United Kingdom |
ISSN | 1450-2887 |
Web Address (URL) | http://www.eurojournals.com/irjfe_43_09.pdf |
Abstract | Due to the mispricing of options, no-arbitrage condition put-call parity (PCP) violations lead to inefficiency in the currency options market. Through transaction costs, the effects of these violations are reduced to negligible levels, indicating that PCP is not a sufficient condition for an options market efficiency test. Thus, this study developed a transaction cost-adjusted put-call parity (TC-Adj-PCP) econometric model to examine the efficiency of options markets. The fundamental analysis of the proposed model concludes that transaction costs represent an omitted variable for the PCP model, where the uniqueness of this variable is demonstrated under PCP in the context of options market efficiency. The novelty of the TC-Adj-PCP model resolves controversial transaction costs issues for traders and researchers. |
Keywords | put-call parity; transaction costs; omitted variable; serial correlation;, ARCH |
ANZSRC Field of Research 2020 | 350203. Financial econometrics |
380110. International economics | |
380202. Econometric and statistical methods | |
Byline Affiliations | School of Accounting, Economics and Finance |
https://research.usq.edu.au/item/q00yq/econometric-modeling-for-transaction-cost-adjusted-put-call-parity-evidence-from-the-currency-options-market
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