Price Inefficiencies in Commodities-Linked Derivatives Markets: A Model-Free Analysis

31 Pages Posted: 20 Nov 2008

See all articles by Alejandro Balbás

Alejandro Balbás

Universidad Carlos III de Madrid - Department of Business Administration

Anna Downarowicz

Javier Gil-Bazo

Universitat Pompeu Fabra; Barcelona Graduate School of Economics (Barcelona GSE)

Date Written: July 26, 2008

Abstract

We propose a new test for the efficiency of derivatives' prices based on the concept of global dominance in arbitrage-free markets with frictions. A portfolio is globally dominated if there exists an alternative cheaper investment strategy that provides a higher future payoff. Our approach is, therefore, more general than previous model-free efficiency analyses, which have investigated violations of the put-call parity or the spot-futures price relationship. We apply our method to oil-linked derivatives traded at NYMEX. Our results reveal the presence of frequent and economically meaningful price inefficiencies in this market.

Keywords: commodities-linked derivatives, price effciency, options markets, portfolio global dominance

JEL Classification: G12, G13, G15

Suggested Citation

Balbás de la Corte, Alejandro and Downarowicz, Anna and Gil-Bazo, Javier, Price Inefficiencies in Commodities-Linked Derivatives Markets: A Model-Free Analysis (July 26, 2008). Available at SSRN: https://ssrn.com/abstract=1304085 or http://dx.doi.org/10.2139/ssrn.1304085

Alejandro Balbás de la Corte

Universidad Carlos III de Madrid - Department of Business Administration ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain

Javier Gil-Bazo

Universitat Pompeu Fabra ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

Barcelona Graduate School of Economics (Barcelona GSE) ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

No contact information is available for Anna Downarowicz

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
174
Abstract Views
1,441
rank
178,630
PlumX Metrics