The Italian Market for 'Premium' Contracts: An Application of Option Pricing Theory

30 Pages Posted: 5 Mar 2004

See all articles by Emilio Barone

Emilio Barone

Luiss - Guido Carli (Dpt. of Economics and Finance)

Domenico Cuoco

University of Pennsylvania - Finance Department

Date Written: March 1989

Abstract

Despite their growing importance on Italian stock exchanges, premium contracts have not received very much attention in analytical studies. This paper starts with a description of the working of the market for premium contracts with the aim of highlighting its institutional peculiarities compared with foreign markets for stock options and then develops a formula for the determination of premia based on arbitrage methods similar to those used in option pricing theory. The empirical test of the correspondence between actual market premia and the theoretical values obtained provides some indication of the scope for arbitrage between premium and forward contracts, and hence of the efficiency of Italian stock exchange markets.

Suggested Citation

Barone, Emilio and Cuoco, Domenico, The Italian Market for 'Premium' Contracts: An Application of Option Pricing Theory (March 1989). Available at SSRN: https://ssrn.com/abstract=512482 or http://dx.doi.org/10.2139/ssrn.512482

Emilio Barone (Contact Author)

Luiss - Guido Carli (Dpt. of Economics and Finance) ( email )

Viale Romania, 32
Rome, 00197
Italy

HOME PAGE: http://docenti.luiss.it/barone/

Domenico Cuoco

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

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