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Title:Are options on index futures profitable for risk averse investors? Empirical evidence PDF Logo
Authors:Jackwerth, Jens Carsten
Constantinides, George M.
Czerwonko, Michal
Perrakis, Stelios
Issue Date:2008
Series/Report no.:Discussion paper series // Zentrum für Finanzen und Ökonometrie, Universität Konstanz 2008,08
Abstract:American call and put options on the S&P 500 index futures that violate the stochastic dominance bounds of Constantinides and Perrakis (2007) over 1983-2006 are identified as potentially profitable investment opportunities. Call bid prices more frequently violate their upper bound than put bid prices do, while evidence of underpriced calls and puts over this period is scant. In out-of-sample tests, the inclusion of short positions in such overpriced calls, puts, and, particularly, straddles in the market portfolio is shown to increase the expected utility of any risk averse investor and also increase the Sharpe ratio, net of transaction costs and bid-ask spreads. The results are strongly supportive of mispricing.
Subjects:option mispricing
futures options
derivatives pricing
stochastic dominance
transaction costs
market efficiency
JEL:G11
G13
G14
Persistent Identifier of the first edition:urn:nbn:de:bsz:352-opus-54067
Document Type:Working Paper
Appears in Collections:CoFE-Diskussionspapiere, Universität Konstanz

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