VALUING CALL OPTIONS ON SINGLE STOCK FUTURES: DOES THE PUT-CALL PARITY RELATIONSHIP HOLD IN THE SOUTH AFRICAN DERIVATIVES MARKET?

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Abstract

This study attempts to determine whether this mispricing of financial derivatives is present in the South African derivatives market. This will be achieved by evaluating options for futures on individual stocks using a put-call parity ratio. The resulting theoretical fair value is compared with the actual market value for the three-year period (2009–2011). The results show that arbitrage opportunities are presented for selected stocks. Further research may include more stocks over a longer period to determine if there can be any model that can form the basis of an arbitrage trading strategy.

Keywords: Put-Call Forward Parity, Arbitrage Trading, Mispricing, Violations

How to cite this paper: Biebuyck, A., & Rooyen, J.H. (2014). Valuing call options on single stock futures: Does the put-call parity relationship hold in the South African derivatives market? Risk governance & control: financial markets & institutions, 4(3), 30-43. https://doi.org/10.22495/rgcv4i3art4