Put–Call Parity Violations Under Limited Arbitrage: A Case Study and a Simulation Tool for Detecting Financial Irregularity
We use simulated data to examine the ability of standard statistical tests to detect the presence of price pressure resulting from attempts to manipulate the stock options market. We find limited ability of difference tests to detect anomalous price pressure in cases where limits to arbitrage are absent or the degree of price pressure is low and when the anomalous price pressure occurs for a short period relative to the overall window analyzed. To help with pedagogical use of our method, we provide a detailed case study of Porsche’s takeover attempt of Volkswagen (VW). The case study helps students to devise classroom tools for detecting and taking timely actions against financial misconduct.
KeywordsOption Price Call Option Stock Option Implied Volatility Strike Price
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