Arbitrage Potential in the Eurex Order Book – Evidence from the Financial Crisis in 2008

Electronic version of an article published in Risk governance & control: financial markets & institutions, Volume 5, Issue 4, 2015, Continued - 2, pages 300 - 313

Presented at the 49th Annual Meeting of the Southwestern Finance Association, March 2010

33 Pages Posted: 30 May 2015 Last revised: 12 Mar 2019

See all articles by Peter Schober

Peter Schober

Goethe University Frankfurt - Department of Finance

Martin Wagener

Stuttgart Stock Exchange

Date Written: 2010

Abstract

In this paper we investigate the valuation efficiency of the Eurex market for DAX single stock options. As a measure of arbitrage potential we use an adapted version of Stoll's put-call parity model. By calculating deviations from the theoretical fair put and call prices before and during the financial crisis in 2008, we find evidence for a decrease in market's valuation efficiency. Valuation efficiency is even worse for German financial stocks for which short selling was restricted. Although considerable profit opportunities are found, only a small number turn out to be profitable after transaction costs are considered. Our research complements the existing research by investigating American type stock options on a fully electronic exchange in both, volatile and stable markets.

Keywords: Arbitrage Potential, Valuation Efficiency, Financial Crisis, Volatility, Short-Selling

JEL Classification: C20, G14, G15

Suggested Citation

Schober, Peter and Wagener, Martin, Arbitrage Potential in the Eurex Order Book – Evidence from the Financial Crisis in 2008 (2010). Electronic version of an article published in Risk governance & control: financial markets & institutions, Volume 5, Issue 4, 2015, Continued - 2, pages 300 - 313; Presented at the 49th Annual Meeting of the Southwestern Finance Association, March 2010. Available at SSRN: https://ssrn.com/abstract=2596541 or http://dx.doi.org/10.2139/ssrn.2596541

Peter Schober (Contact Author)

Goethe University Frankfurt - Department of Finance ( email )

House of Finance
Theodor-W.-Adorno Platz 3
Frankfurt am Main, Hessen 60323
Germany

Martin Wagener

Stuttgart Stock Exchange ( email )

Börsenstraße 4
Stuttgart, 70174
Germany

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