The Law of One Price in Equity Volatility Markets

Autor:	Peter Van Tassel
Rok vydání:	2020
Předmět:	Law of one price Sharpe ratio Systematic risk Econometrics Economics Trading strategy Arbitrage Volatility (finance) Limits to arbitrage Futures contract
Zdroj:	SSRN Electronic Journal.
ISSN:	1556-5068
DOI:	10.2139/ssrn.3751612
Popis:	This paper documents law of one price violations in equity volatility markets. While tightly linked by no-arbitrage restrictions, the prices of VIX futures exhibit significant deviations relative to their option-implied upper bounds. Static arbitrage opportunities occur when the prices of VIX futures violate their bounds. The deviations widen during periods of market stress and predict the returns of VIX futures. A relative value trading strategy based on the deviation measure earns a large Sharpe ratio and economically significant alpha-to-margin. There is evidence that systematic risk and demand pressure contribute to the variation in the no-arbitrage deviations over time.
Databáze:	OpenAIRE
Externí odkaz:	https://explore.openaire.eu/search/publication?articleId=doi_________::4545d1fc67fa08d91fd62fa6db66d209 https://doi.org/10.2139/ssrn.3751612 Zobrazit plný text záznamu