Econometric Modeling for Transaction Cost-Adjusted Put-Call Parity: Evidence from the Currency Options Market | Zendy

Ariful Hoque | Zendy

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Econometric Modeling for Transaction Cost-Adjusted Put-Call Parity: Evidence from the Currency Options Market

Author(s) -

Ariful Hoque

Publication year - 2010

Publication title -

ssrn electronic journal

Language(s) - English

Resource type - Journals

ISSN - 1556-5068

DOI - 10.2139/ssrn.1537834

Subject(s) - transaction cost , currency , interest rate parity , economics , econometrics , financial economics , parity (physics) , monetary economics , business , actuarial science , finance , physics , particle physics

A new era in currency trading began in July 2007 with the launching of World Currency Options (WCO). The aim of this paper is to provide new evidence of the WCO market’s efficiency based on the no-arbitrage put-call parity (PCP) relationship. This study adapts the PCP relationship-compatible econometric approach to conquer the weaknesses of the traditional method for analyzing the validity of PCP. The overall findings of this paper imply that the WCO market is efficient even though it is in the settling curve, which will motivate market participants, including novice investors, to trade currency options for different purposes

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