Research On Index Arbitrage

Finance is the core of modern economy. Finance and derivatives have becoming increasingly important in the world of finance. Index futures have becoming the second widely used derivatives after few decades' development since the first index futures contract started trade in 1982.Index arbitrage is a strategy designed to profit from temporary discrepancies between the stock index futures and the mimicking portfolio of stock index spot. Index arbitrage is a more practical strategy since the stock index futures have developed in the domestic market. Therefore, index arbitrage is considered as the key research topic in this paper. The fundamental issue of index arbitrage concerns how to price the stock index futures reasonably. So far, the majority of studies of futures pricing are based on the cost of carry model and the expectation theory, moreover, the cost of carry model is the most widely used pricing model. This paper discusses the factors which lead to misprice the stock index futures based on the cost of carry model and develops the pricing model of stock index futures in the inefficient market.In China, building a portfolio of the simulative stock index futures stock options simulation results show that a single ETF / LOF program does not meet the needs of arbitrage, and complex simulation of the effect of the ETF can copy the basic stock portfolio spot.This article will also be applied to Taiwan Weighted Index futures and spot data analysis of the evidence. The results showed that under the circumstances of sharp volatility in the market, to grasp the opportunity is very difficult. It can not perform well both in emergency and transitional period. However, in the initial stage and mature stage, a better opportunity to arbitrage trading actually exists.In this paper, in the course of the study has yielded some results, but also left many questions needing further study. First one is the stock index futures and spot prices of the leading index - behind the relationship; the second one is the volatility of the stock market and the third one is the securities and exchange system among whichthe most important is to limit the restrictions on short selling.