Efficiency of the foreign currency options market

Hoque, Ariful and Chan, Felix and Manzur, Meher (2008) Efficiency of the foreign currency options market. Global Finance Journal, 19 (2). pp. 157-170. ISSN 1044-0283

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This paper provides a new test of the efficiency of the currency option markets for four major currencies-British Pound, Euro, Swiss Frank and Japanese Yen vis-a-vis the U.S. dollar. The approach is to simulate trading strategies to see if the well-accepted no-arbitrage condition of put–call parity (PCP) holds in a trading environment. Augmented Dickey–Fuller and Philips–Perron tests are used to check for the presence of unit roots in the data, followed by a formal econometric analysis. The results indicate that the most currency option prices do not violate the PCP conditions, when transaction costs are allowed for.

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Item Type: Article (Commonwealth Reporting Category C)
Refereed: Yes
Item Status: Live Archive
Additional Information: © 2008 Elsevier Inc. Permanent restricted access to published version due to publisher copyright policy. Author's version deposited in accordance with the copyright policy of the publisher.
Faculty / Department / School: Historic - Faculty of Business - School of Accounting, Economics and Finance
Date Deposited: 06 Nov 2009 00:28
Last Modified: 09 Dec 2014 05:14
Uncontrolled Keywords: foreign currency options; lower boundary conditions; put–call parity; conditional variance; transaction costs
Fields of Research : 15 Commerce, Management, Tourism and Services > 1502 Banking, Finance and Investment > 150201 Finance
15 Commerce, Management, Tourism and Services > 1502 Banking, Finance and Investment > 150205 Investment and Risk Management
14 Economics > 1401 Economic Theory > 140102 Macroeconomic Theory
Socio-Economic Objective: B Economic Development > 91 Economic Framework > 9101 Macroeconomics > 910104 Exchange Rates
Identification Number or DOI: 10.1016/j.gfj.2008.02.002
URI: http://eprints.usq.edu.au/id/eprint/6044

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