Implied Volatilities and Arbitrage Opportunities in the Italian Options Market

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 1991

Abstract

This paper, which follows up the analyses of an earlier study published in December 1988, starts by updating the description of the regulatory framework for Italian stock options (premium contracts), with reference both to the regulations issued by the Consob (the Italian SEC) and the changes in tax law. This is followed by figures on the size of the market and its development in recent years. After describing the standards operators use to value premium contracts and quantifying the deviations from the theoretical values, we examine the techniques for forecasting share price volatilities and verify the information content of the implied volatilities of premium contracts. The last part of the paper describes an extensive simulation designed to reveal arbitrage opportunities that operators failed to exploit during the period in question, with account being taken of transaction costs.

Suggested Citation

Barone, Emilio and Cuoco, Domenico, Implied Volatilities and Arbitrage Opportunities in the Italian Options Market (March 1991). Available at SSRN: https://ssrn.com/abstract=512507 or http://dx.doi.org/10.2139/ssrn.512507

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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