Theoretical And Empirical Study On Arbitrage Of Stock Index Futures

Stock Index Futures are contracts whose underlying asset is stock index. Whenthe prices of index futures deviate from their theoretical prices, arbitrage opportunitiesmay occur. This paper mainly studies two kinds of index futures arbitrages: timepresent arbitrage and calendar spread arbitrage.Based on the stochastic calculus, the stock index futures are priced by risk neutralmethod, assuming the stock price equations have constant or deterministic coefficientfunctions. After that, transaction costs, including commission charge, tax fee, margin,impact cost and tracking error cost which arises during the replication of stock index,are introduced and evaluated. With the transaction costs considered, the non-arbitrageregions of index futures prices are discussed theoretically and empirically during thestudy on time present arbitrage. About calendar spread arbitrage, linear regressionmodels are constructed to describe the relations between stock index futures with dif-ferent maturities. Similarly, the non-arbitrage regions of the price ratio between con-tracts are discussed and verified which market data. It is shown that there exist bothkinds of arbitrage opportunities in the market and the linear relations between indexfutures prices are significant.The theories and trading strategies of Cross Arbitrage for stock index futures areintroduced at the end of this paper.