Pricing and Informational Efficiency of the Mib30 Index Options Market. An Analysis with High Frequency Data

32 Pages Posted: 2 Sep 2003

See all articles by Gianluca Cassese

Gianluca Cassese

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

Massimo Guidolin

University of Liverpool Management School; Bocconi University - CAREFIN - Centre for Applied Research in Finance

Date Written: 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.

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

JEL Classification: G13, G14

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: https://ssrn.com/abstract=430580 or http://dx.doi.org/10.2139/ssrn.430580

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

University of Liverpool Management School ( email )

Bocconi University - CAREFIN - Centre for Applied Research in Finance

Via Sarfatti 25
Milan, 20136
Italy

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