Price Expectation and the Pricing of Stock Index Futures

Price Expectation and the Pricing of Stock Index Futures Capital markets are not perfect or frictionless, and arbitrage mechanism cannot be complete, particularly for index arbitrage. This study constructs a theoretical foundation to explain why the price expectation of the underlying asset should be entered into the pricing formula of stock index futures. The price expectation and incompleteness of arbitrage then are taken into account to develop a pricing model of stock index futures in imperfect markets. This study also presents three approaches for estimating the model parameter. Finally, the concept of the degree of market imperfection is defined and the valuation model is provided. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Price Expectation and the Pricing of Stock Index Futures

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2004 by Kluwer Academic Publishers
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1023/B:REQU.0000039510.16484.21
Publisher site
See Article on Publisher Site

References

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