Put-Call Parity: Evidence From the Australian Options Market

Abstract

This study tests the relative prices of exchange traded puts and calls. Some evidence of violation of the parity conditions are found, particularly in the period immediately prior to expiry of the options and in instances where the exercise price exceeds the market price of the underlying stock. But violations of this type are difficult to exploit after allowing for possible transaction costs. Although transaction costs cannot explain the existence of these violations, they do provide a rationale for their non-exploitation.