An Empirical Analysis of the Arbitrage Opportunities in the KOSPI200 Futures and Options Markets

Kee Hong Bae (Korea University)
Su Jae Chang (Korea University)
Jin Wan Cho (Korea University)

Journal of Derivatives and Quantitative Studies: 선물연구

ISSN: 1229-988X

Article publication date: 30 November 2004

Abstract

We investigate the frequency of arbitrage opportunities and the size of their profits in the options and futures markets of KOSPI200 index. A thread of existing studies shows that these opportunities arise frequently, albeit the frequency is decreasing as the market matures. These studies, however, use transaction data in their analysis. Using the transaction data tends to overestimate both the frequency and the size of arbitrage gains, since it ignores the transactions cost imbedded in the bid-ask spread. In this study, we use the quote data to correctly reflect the transactions cost in executing the trades to take advantage of an arbitrage opportunity. By using the data spanning the period from Sep. 3, 2001 to Mar. 29. 2002, we show that both the frequency and size of arbitrage gains are much smaller than those when transaction data are used instead of Quote data. We also find that the Individual traders are the primary source that provide the arbitrage opportunities.

Keywords

Citation

Bae, K.H., Chang, S.J. and Cho, J.W. (2004), "An Empirical Analysis of the Arbitrage Opportunities in the KOSPI200 Futures and Options Markets", Journal of Derivatives and Quantitative Studies: 선물연구, Vol. 12 No. 2, pp. 45-71. https://doi.org/10.1108/JDQS-02-2004-B0003

Publisher

:

Emerald Publishing Limited

Copyright © 2004 Emerald Publishing Limited

License

This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode