ARBITRAGE POTENTIAL IN THE EUREX ORDER BOOK – EVIDENCE FROM THE FINANCIAL CRISIS IN 2008

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Abstract

In this paper we investigate the valuation efficiency of the Eurex market for DAX single stock options. As a measure of arbitrage potential we use an adapted version of Stoll’s put-call parity model. By calculating deviations from the theoretical fair put and call prices before and during the financial crisis in 2008, we find evidence for a decrease in market’s valuation efficiency. Valuation efficiency is even worse for German financial stocks for which short selling was restricted. Although considerable profit opportunities are found, only a small number turn out to be profitable after transaction costs are considered. Our research complements the existing research by investigating American type stock options on a fully electronic exchange in both, volatile and stable markets.

Keywords: Arbitrage Potential, Valuation Efficiency, Financial Crisis, Volatility, Short-selling

How to cite this paper: Schober, P., Wagener, M. (2015). Arbitrage potential in the Eurex order book – evidence from the financial crisis in 2008. Risk governance & control: Financial markets & institutions, 5(4-2), 300-313. https://doi.org/10.22495/rgcv5i4c2art4