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Put‐Call Parity and Arbitrage Bounds for Options on Grain Futures
Author(s) -
Wilson William W.,
Fung HungGay
Publication year - 1991
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1242883
Subject(s) - arbitrage , futures contract , index arbitrage , risk arbitrage , fixed income arbitrage , financial economics , economics , covered interest arbitrage , parity (physics) , statistical arbitrage , futures market , algorithmic trading , business , interest rate parity , monetary economics , interest rate , arbitrage pricing theory , physics , capital asset pricing model , particle physics
Many arbitrage opportunities have become available for market participants since the inception of trading in options. Central to many of these is the put‐call parity relationship. If this condition is violated, arbitrage profits could be earned. This paper examines arbitrage possibilities between put and call options on grain futures using two different tests. One is a test of market efficiency over the duration of trading, and the other evaluates arbitrage bounds on individual trading days. In general, the results suggest that the options markets on grain futures are not completely efficient. However, violations varied substantially across contracts and through time.