Facoltà di scienze economiche

Pricing and informational effciency of the MIB30 index options market : an analysis with high frequency data

Cassese, Gianluca ; Guidolin, Massimo

We analyze the pricing and informational effciency of the Italian market for options written on the most important stock index, the MIB30. We find several indications inconsistent with the hypothesis that the Italian MIBO is an effcient market. We report that a striking percentage of the data consists of option prices violating basic no-arbitrage conditions. This percentage declines but never... Plus

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    Summary
    We analyze the pricing and informational effciency of the Italian market for options written on the most important stock index, the MIB30. We find several indications inconsistent with the hypothesis that the Italian MIBO is an effcient market. We report that a striking percentage of the data consists of option prices violating basic no-arbitrage conditions. This percentage declines but never becomes negligible when we relax the no-arbitrage restrictions to accommodate for the presence of bid/ask spreads and other frictions. The result holds in general for all levels of moneyness and time to maturity. We also document abrupt changes of the implied volatility surface that can hardly be explained by changes in market beliefs. Finally we investigate the informational effciency of the MIBO and conclude that option prices are poor predictors of the volatility of MIB30 returns.