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
33 Pages Posted: 30 May 2015 Last revised: 12 Mar 2019
Date Written: 2010
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: Suggested Citation