Abstract
This article empirically tests the time-correlation of implied information reflecting the return dynamics of KOSPI 200 markets in the view of the decision making and market efficiency. Because option prices are not perfectly correlated with each other and with the underlying asset, the information contents of the option are different from those of the underlying market price. And, under the non-complete of the market and the limited arbitrage, the information implied in option (underlying) market price may be more useful in the option (underlying) market than in the underlying (option) market.
The estimation results show that the time-correlation of incremental information are existed in performance of out-of-sample pricing and delta hedging conditioned on MR, a result which is not suggestive of the informational efficiency of the KOSPI 200 market. But, the decision marking using the systematic pattern may not be useful due to the option pricing models that allows moments of higher order than two reflecting the source of which the risk-neutrality assumption is strongly rejected by the data.
Keywords
Citation
Kim, M.S. and Kang, T.H. (2009), "The Pricing and Hedging using the Implied Information Conditioned on Martingale Restriction and Market Efficiency", Journal of Derivatives and Quantitative Studies: 선물연구, Vol. 17 No. 4, pp. 1-42. https://doi.org/10.1108/JDQS-04-2009-B0001
Publisher
:Emerald Publishing Limited
Copyright © 2009 Emerald Publishing Limited
License
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