Liquidity and Arbitrage in Options Markets: A SurvivalAnalysis ApproachReport as inadecuate

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1 DRM - Dauphine Recherches en Management

Abstract : This paper examines the determinants of the time it takes for an index options market to return to no arbitrage values after put-call parity deviations, using intraday transactions data from the French index options market. We employ survival analysis to characterize how limits to arbitrage influence the expected duration of arbitrage deviations. After controlling for conventional limits to arbitrage, we show that liquidity-linked variables are associated with a faster reversion of arbitrage profits. The introduction of an ETF also affects the survival rates of deviations but this impact essentially stems from the reduction in the level of potential arbitrage profits.

Mots-clés : Limits to arbitrage liquidity survival analysis index options ETFs

Author: Laurent Deville - Fabrice Riva -



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