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The aim of the present study is to examine the internal market efficiency of the Indian index options by testing S and P CNX Nifty index options using box-spread arbitrage strategy. Daily closing prices of index options from April 01, 2008 to March 31, 2012 are used to identify the mispricing and arbitrage opportunities with the model-free box-spread approach. The result of the sensitivity analysis of violations with respect to time to maturity and moneyness demonstrates that the majority of violations in options contract are deceptive, as the liquidity is expected to be very low in such contracts. Further, the proportion of exploitable violations severely falls after considering the transaction costs, as most of the profits were wiped out and showing negative profits. Thus, although the Indian index options market shows traces of inefficiency, in totality it is suggested that the Indian index options market is efficient as majority of violations are un-exploitable after incorporating transaction costs.

The purpose of the present study is to provide evidence on the market efficiency of the S&P CNX Nifty index options traded on the National Stock Exchange (NSE) of India, using the Black–Scholes model and dynamic hedging strategy. Till today, a limited literature exists on the market efficiency of the Indian index option by using a dynamic hedging strategy. Thus, an effort has been made in constructing the dynamic hedging strategy to examine whether the violations obtained from the Black–Scholes model can be covered by the costs in setting up the dynamic hedge strategy. The data collected in this study consist of daily closing prices of S&P CNX Nifty index options contracts from 1 April 2008 to 31 March 2012. The results demonstrate that, although the sensitivity analysis of violations with respect to liquidity, time to maturity and moneyness show that the majority of violations in options are exploitable, the proportion of exploitable violations severely falls after considering the transaction cost, as most of the profits were wiped out and showing negative profits. Thus, although the Indian index options market shows traces of inefficiency, in totality, it is suggested that the Indian index options market is efficient as a majority of violations are un-exploitable after incorporating transaction cost.

The purpose of the present study is to examine the cross market efficiency of the Indian index options, futures and cash market by testing S&P CNX Nifty index options, by Put-Call Parity condition using spot index values and futures prices. Over a period from April 01, 2008 to March 31, 2012, the daily closing prices of nifty index options contracts, spot values and futures contracts have been used in this research. The results of the sensitivity analysis of violations with respect to time to maturity and moneyness demonstrates that the majority of violations in options contract are exploitable, however, the proportion of exploitable violations severely falls after considering the transaction cost, as most of the profits were wiped out and showing negative profits. Thus, although the Indian index options market shows traces of inefficiency, in totality it is suggested that the Indian index options market is efficient as majority of violations are un-exploitable after incorporating transaction cost.