THE EFFECT OF TTT INTRODUCTION ON SPOT-FUTURES AND SPOT-OPTIONS ARBITRAGES

This paper uses cost-of-carry model to simulate spot-futures pricing relationship, and uses put-call parity and boundary condition of call and put to simulate spot-option pricing relationship. The empirical results support that spot-futures pricing relationship tense after TTT launching, especially for short arbitrage. The frequency and size of ex post and ex ante violation decrease in the post-TTT period for short arbitrage, but not for long arbitrage. The evidence is consistent with the notion that TTT reduces arbitrage opportunity and leads to the improvements of fewer short-sale restrictions, smaller transaction cost and smaller transaction cost for short arbitrage. For imitating boundary condition of call, we find the frequency and size of ex post and ex ante violation significantly diminish since TTT began trading. However the result is insignificant for put boundary condition. As for simulating put-call parity, the frequency and size of ex post and ex ante violation significantly diminish after TTT introduction for short arbitrage, but is significant for long arbitrage. The evidences are the same as the spot-futures pricing relationship that TTT leads to the improvement of fewer short-sale restrictions, smaller transaction cost and smaller transaction cost for short arbitrage. This paper uses cost-of-carry model to simulate spot-futures pricing relationship, and uses put-call parity and boundary condition of call and put to simulate spot-option pricing relationship. The empirical results support that spot-futures pricing relationship tense after TTT launching, especially for short arbitrage. The frequency and size of ex post and ex ante violation decrease in the post-TTT period for short arbitrage, but not for long arbitrage. The evidence is consistent with the notion that TTT reduces arbitrage opportunity and leads to the improvements of fewer short-sale restrictions, smaller transaction cost and smaller transaction cost for short arbitrage. For imitating boundary condition of call, we find the frequency and size of ex post and ex ante violation significantly diminish since TTT began trading. However the result is insignificant for put boundary condition. As for simulating put-call parity, the frequency and size of ex post and ex ante violation significantly diminish after TTT introduction for short arbitrage, but is significant for long arbitrage. The evidences are the same as the spot-futures pricing relationship that TTT leads to the improvement of fewer short-sale restrictions, smaller transaction cost and smaller transaction cost for short arbitrage.