Article1989

The Box Spread Arbitrage Conditions: Theory, Tests, and Investment Strategies

Aimee G. Ronn and Ehud I. Ronn. · Ehud I. Ronn

55 citations0/0 files storedReview of Financial Studies

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Stochastic processes and financial applications Financial Markets and Investment Strategies Financial Risk and Volatility Modeling

Abstract

This paper develops and tests arbitrage bounds for a combination of two option spread positions known as a box spread. This strategy involves the simultaneous use of four options and creates a position that is equivalent to riskless lending. The no-arbitrage conditions are compared to existing arbitrage bounds and are tested using Chicago Board Options Exchange data.

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References

1973Theory of Rational Option Pricing 2005Theory of rational option pricing 1985Bid, ask and transaction prices in a specialist market with heterogeneously informed traders 1984A Simple Implicit Measure of the Effective Bid-Ask Spread in an Efficient Market 1980An ex ante analysis of put-call parity

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