Abstract

http://ssrn.com/abstract=430580
 
 

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Pricing and Informational Efficiency of the MIB30 Index Options Market. An Analysis with High Frequency Data


Gianluca Cassese


Department of Economics, Statistics and Management; University of Lugano - Institute of Finance

Massimo Guidolin


Bocconi University - Department of Finance

July 31, 2003


Abstract:     
We analyze the pricing and informational efficiency of the Italian market for options written on the most important stock index, the MIB30. We find several indications inconsistent with the hypothesis that the Italian MIBO is an efficient market. We report that a striking percentage of the data consists of option prices violating basic no-arbitrage conditions. This percentage declines but never becomes negligible when we relax the no-arbitrage restrictions to accommodate for the presence of bid/ask spreads and other frictions. The result holds in general for all levels of moneyness and time to maturity. 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.

Number of Pages in PDF File: 32

Keywords: Option pricing, arbitrage, informational efficiency, MIB30 index

JEL Classification: G13, G14

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Date posted: September 2, 2003  

Suggested Citation

Cassese, Gianluca and Guidolin, Massimo, Pricing and Informational Efficiency of the MIB30 Index Options Market. An Analysis with High Frequency Data (July 31, 2003). Available at SSRN: http://ssrn.com/abstract=430580 or http://dx.doi.org/10.2139/ssrn.430580

Contact Information

Gianluca Cassese (Contact Author)
Department of Economics, Statistics and Management ( email )
Via Bicocca degli Arcimboldi, 8
Milan, MI 20126
Italy
HOME PAGE: http://www.statistica.unimib.it/utenti/cassese
University of Lugano - Institute of Finance ( email )
Via Buffi 13
CH-6900 Lugano
Switzerland
Massimo Guidolin
Bocconi University - Department of Finance ( email )
Via Roentgen 1
Milano, MI 20136
Italy
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