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Pricing and Informational Efficiency of the MIB30 Index Options Market. An Analysis with High‐frequency Data
Author(s) -
Cassese Gianluca,
Guidolin Massimo
Publication year - 2004
Publication title -
economic notes
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.274
H-Index - 19
eISSN - 1468-0300
pISSN - 0391-5026
DOI - 10.1111/j.0391-5026.2004.00133.x
Subject(s) - arbitrage , economics , volatility (finance) , econometrics , index (typography) , ask price , valuation of options , bid price , financial economics , finance , computer science , world wide web
We analyse the pricing and informational efficiency of the Italian market for options written on the most important stock index, the MIB30. We report that a striking percentage of the data consists of option prices violating basic no‐arbitrage conditions. This percentage declines when we relax the no‐arbitrage restrictions to accommodate the presence of bid/ask spreads and other frictions but never becomes negligible. We also investigate the informational efficiency of the MIBO and conclude that option prices are poor predictors of the volatility of MIB30 returns. This conclusion is robust to a number of statistical and sampling methods.(J.E.L.: G13, G14).