Browsing by Author "Chen, Chin-Ho"

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Arbitrage opportunities, liquidity provision, and trader types in an index option market
(1970-01-01)
Chen, Chin-Ho
;
Chiu, Junmao
;
Chung, Huimin
;
資訊管理與財務金融系註：原資管所+財金所
;
Department of Information Management and Finance
This study examines the impact of arbitrage in put-call futures parity (PCFP) violations on option market liquidity and explores the liquidity provision process by trader type during periods of arbitrage exploitation. Using a unique data set comprising the complete history of transactions, we find that PCFP violations contain toxic arbitrage opportunities. Hence, more frequent toxic arbitrage opportunities can cause liquidity to deteriorate because arbitrageurs create adverse selection costs and order imbalances in the option market. In addition, when the law of one price breaks down, market makers dominate by providing liquidity compared with individual, domestic, and foreign institutional traders.
DEVIATIONS FROM PUT-CALL PARITY AND VOLATILITY PREDICTION: EVIDENCE FROM THE TAIWAN INDEX OPTION MARKET
(2014-12-01)
Chen, Chin-Ho
;
Chung, Huimin
;
Yuan, Shu-Fang
;
資訊管理與財務金融系註：原資管所+財金所
;
Department of Information Management and Finance
This study examines whether deviations from put-call parity are informative about future volatility in the underlying index. Using the difference in implied volatility between call and put options to measure these deviations, we find that deviations from put-call parity predict future volatility. The predictability becomes stronger as option liquidity increases and the liquidity of the underlying index decreases. The results for volatility prediction remain significant even after controlling for implied volatility, information shocks, other information variables on return and volatility used widely in the literature, and short sales constraints. In addition, our results also show that deviations from put-call parity contain information about the future trading volume of options and the underlying index. (c) 2014 Wiley Periodicals, Inc. Jrl Fut Mark 34:1122-1145, 2014