TITLE:
Empirical Analysis of Potential Put-Call Parity Arbitrage Opportunities with Particular Focus on the Shanghai Stock Exchange 50 Index
AUTHORS:
Elmar Steurer, Ernst J. Fahling, Jiali Du
KEYWORDS:
Put-Call-Parity, Put-Call-Arbitrage, Volatility Indices, Volatility Smile, Volatility Trading
JOURNAL NAME:
Journal of Financial Risk Management,
Vol.11 No.1,
January
29,
2022
ABSTRACT: Put-Call-Parity is a major cornerstone of the option pricing theory. The
equation provides an answer to the equilibrium of the option market. It tells
us what the right call option price should be assuming put price, actual stock
price, risk free rate and maturity. The call price depends on these parameters. No arbitrage opportunities are possible if the
equilibrium equation is met. In financially well developed countries and regions
the put-call-parity holds and allows no arbitrage opportunities except in
abnormal market conditions. This paper aims to analyse the put-call-parity in
China for a certain period of time. It reviews if arbitrage opportunities can be identified. It shows that the put-call-parity dominates the option market in China as
well despite shorter periods in the development of the financial markets and
allows no arbitrage opportunities.