The impact of execution delay on the profitability of put-call-futures trading strategies-Evidence from Taiwan

This study examines the impact of execution delay on the profitability of put‐call‐futures quasi‐arbitrage strategies using trade and quote data in the Taiwanese market. Assuming order execution at the next immediate price following a mispricing signal, the execution of individual components is trac...

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Bibliographic Details
Published in:The journal of futures markets 2007-04, Vol.27 (4), p.361-385
Main Authors: Chiou, Jong-Rong, Hsieh, Wen-Liang Gideon, Lin, Yuan-Yi
Format: Article
Language:English
Subjects:
Arbitrage
Call options
Financial engineering
Futures
Futures trading
Impact analysis
Mathematical finance
Option pricing
Portfolio management
Profitability
Put options
Studies
Taiwan
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Summary:This study examines the impact of execution delay on the profitability of put‐call‐futures quasi‐arbitrage strategies using trade and quote data in the Taiwanese market. Assuming order execution at the next immediate price following a mispricing signal, the execution of individual components is traced and a substantial delay resulting from the late execution of an option is reported. A fill‐or‐kill strategy that directly restricts such a delay is unsatisfactory because unwinding already acquired positions involves added transaction costs. Ex ante performance is significantly improved for combined strategies that execute the less liquid asset first, while shortening the time before acquisition of the first position. © 2007 Wiley Periodicals, Inc. Jrl Fut Mark 27:361–385, 2007
ISSN:0270-7314
1096-9934
DOI:10.1002/fut.20245