Please use this identifier to cite or link to this item: https://doi.org/10.1002/fut.20472
Title: Optimal arbitrage strategies on stock index futures under position limits
Authors: Dai, M. 
Zhong, Y.
Kwok, Y.K.
Issue Date: Apr-2011
Citation: Dai, M., Zhong, Y., Kwok, Y.K. (2011-04). Optimal arbitrage strategies on stock index futures under position limits. Journal of Futures Markets 31 (4) : 394-406. ScholarBank@NUS Repository. https://doi.org/10.1002/fut.20472
Abstract: Assuming the absence of market frictions, deterministic interest rates, and certainty in dividend payouts from the stocks in the index basket, an arbitrageur can lock in the profit of a positive (negative) arbitrage basis in a stock index futures by adopting a short (long) futures strategy. In addition, the arbitrageur may improve the arbitrage profit by adopting the so-called early unwinding strategy of liquidating the position before maturity, or more aggressively from the long position directly to the short position or vice versa. In this study, we examine the optimal arbitrage strategies in stock index futures with position limits and transaction costs. In our analysis, the index arbitrage basis is assumed to follow the Brownian Bridge process. The model formulation of the option value functions leads to a coupled system of variational inequalities. We determine the values of the arbitrage opportunities and the optimal threshold values of the arbitrage basis at which the arbitrageur should optimally close an existing position or open a new index arbitrage position. In particular, we examine the impact of transaction costs on the index arbitrage strategies. © 2010 Wiley Periodicals, Inc.
Source Title: Journal of Futures Markets
URI: http://scholarbank.nus.edu.sg/handle/10635/103866
ISSN: 02707314
DOI: 10.1002/fut.20472
Appears in Collections:Staff Publications

Show full item record
Files in This Item:
There are no files associated with this item.

SCOPUSTM   
Citations

4
checked on Oct 18, 2018

WEB OF SCIENCETM
Citations

5
checked on Oct 2, 2018

Page view(s)

45
checked on Oct 5, 2018

Google ScholarTM

Check

Altmetric


Items in DSpace are protected by copyright, with all rights reserved, unless otherwise indicated.