Download this Paper Open PDF in Browser

Options Mispricing in Indian Derivative Markets: A Multiple Models Application Framework

21 Pages Posted: 18 Jan 2010 Last revised: 20 Feb 2010

Ravi Agarwal

O.P. Jindal Global University (JGU)

Wasif Mukhtar

Deloitte Touche Tohmatsu India

Nataraj K.

Birla Institute of Management Technology (BIMTECH)

Sweta Agarwal

affiliation not provided to SSRN

Ridhima Arora

affiliation not provided to SSRN

Date Written: January 15, 2010

Abstract

Some studies show that the performance of option strategies with stock portfolios could depend on other factors or on market conditions. Benninga and Blume (1985) analyzed the optimality of portfolio insurance in complete and incomplete markets, and found that buying put option may be optimal only in an incomplete market, not in a complete market. Brooks and Hand (1988) examined the return characteristics of index futures contracts, and found that both the return distribution and performance evaluation depend on the risk-free rate, the dividend rate, the basis and the margins. In the present study, we have computed implied volatility using a number of models and statistically compared each of them with the historical one. We propose to advocate a portfolio strategy based on such mispricing of options contracts.

Keywords: Derivatives, BSOPM, Implied Volatility

JEL Classification: G12, G32

Suggested Citation

Agarwal, Ravi and Mukhtar, Wasif and K., Nataraj and Agarwal, Sweta and Arora, Ridhima, Options Mispricing in Indian Derivative Markets: A Multiple Models Application Framework (January 15, 2010). Available at SSRN: https://ssrn.com/abstract=1537040 or http://dx.doi.org/10.2139/ssrn.1537040

Ravi Kumar Agarwal (Contact Author)

O.P. Jindal Global University (JGU) ( email )

Sonipat Narela Road
Near Jagdishpur Village
Sonipat, Haryana 131 001
India

HOME PAGE: http://www.jgbs.edu.in/content/ravi-agarwal

Wasif Mukhtar

Deloitte Touche Tohmatsu India ( email )

Hyderabad
India

Nataraj K.

Birla Institute of Management Technology (BIMTECH) ( email )

Plot No. 5
Knowledge Park II
Greader Noida, CA Uttar Pradesh 201306
India

Sweta Agarwal

affiliation not provided to SSRN ( email )

Ridhima Arora

affiliation not provided to SSRN

Paper statistics

Downloads
216
Rank
119,096
Abstract Views
1,034