The Determinants of the Time to Efficiency in Options Markets : A Survival Analysis Approach.

This paper examines the determinants of the time it takes for an index options marketto be brought back to efficiency after put-call parity deviations, using intraday transactionsdata from the French CAC 40 index options over the August 2000 – July 2001 period. Weaddress this issue through survival analysis which allows us to characterize how differencesin market conditions influence the expected time before the market reaches the no-arbitragerelationship. We find that maturity, trading volume as well as trade imbalances in call andput options, and volatility are important in understanding why some arbitrage opportunitiesdisappear faster than others. After controlling for differences in the trading environnement,we find a strong and negative relationship between the existence of ETFs on the index andthe time to efficiency.Survival Analysis; Market efficiency; Index Options; Exchange TradedFunds.;

The Determinants of the Time to Efficiency in Options Markets: A Survival Analysis Approach.

This paper examines the determinants of the time it takes for an index options market to be brought back to efficiency after put-call parity deviations, using intraday transactions data from the French CAC 40 index options over the August 2000 - July 2001 period. We address this issue through survival analysis which allows us to characterize how differences in market conditions influence the expected time before the market reaches the no-arbitrage relationship. We find that moneyness, maturity, trading volume as well as trade imbalances in call and put options, and volatility are important in understanding why some arbitrage opportunities disappear faster than others. After controlling for differences in the trading environnement, we find evidence of a negative relationship between the existence of ETFs on the index and the time to efficiency.Survival analysis; Market efficiency; Survival analysis; exchange traded funds; Index options;

Liquidity and Arbitrage in Options Markets: A SurvivalAnalysis Approach

This paper examines the determinants of the time it takes for an index options market to return to no arbitrage values after put-call parity deviations, using intraday transactions data from the French index options market. We employ survival analysis to characterize how limits to arbitrage influence the expected duration of arbitrage deviations. After controlling for conventional limits to arbitrage, we show that liquidity-linked variables are associated with a faster reversion of arbitrage profits. The introduction of an ETF also affects the survival rates of deviations but this impact essentially stems from the reduction in the level of potential arbitrage profits.Limits to arbitrage, liquidity, survival analysis, index options, ETFs

When overconfident traders meet feedback traders

In this paper, we develop a model in which overconfident market participants and rational speculators trade against trend-chasers. We exhibit the unique linear equilibrium and assess the quality of prices according to the proportion of the different types of agents. We highlight how speculative bubbles arise when a large number of traders adopt a trend-chasing behavior. We show that overconfident traders can obtain positive expected profits. In particular, over-confident traders can outperform rational traders. The positive feedback trading enhances the negative correlation between the back-to-back prices changes and the volatility of prices as well. We show that positive feedback traders destabilize prices more than their overconfident opponents. Generally, overconfidence increases the volatility of prices and worsens the market efficiency. But, we show that in the presence of positive feedback trading, overconfidence improves the market efficiency and dampens the excess volatility

Statistics of non-interacting bosons and fermions in micro-canonical, canonical and grand-canonical ensembles: A survey

The statistical properties of non-interacting bosons and fermions confined in trapping potentials are most easily obtained when the system may exchange energy and particles with a large reservoir (grand-canonical ensemble). There are circumstances, however, where the system under consideration may be considered as being isolated (micro-canonical ensemble). This paper first reviews results relating to micro-canonical ensembles. Some of them were obtained a long time ago, particularly by Khinchin in 1950. Others were obtained only recently, often motivated by experimental results relating to atomic confinement. A number of formulas are reported for the first time in the present paper. Formulas applicable to the case where the system may exchange energy but not particles with a reservoir (canonical ensemble) are derived from the micro-canonical ensemble expressions. The differences between the three ensembles tend to vanish in the so-called Thermodynamics limit, that is, when the number of particles and the volume go to infinity while the particle number density remains constant. But we are mostly interested in systems of moderate size, often referred to as being mesoscopic, where the grand-canonical formalism is not applicable. The mathematical results rest primarily on the enumeration of partitions of numbers.Comment: 18 pages, submitted to J. Phys.

A simple quantum heat engine

Quantum heat engines employ as working agents multi-level systems instead of gas-filled cylinders. We consider particularly two-level agents such as electrons immersed in a magnetic field. Work is produced in that case when the electrons are being carried from a high-magnetic-field region into a low-magnetic-field region. In watermills, work is produced instead when some amount of fluid drops from a high-altitude reservoir to a low-altitude reservoir. We show that this purely mechanical engine may in fact be considered as a two-level quantum heat engine, provided the fluid is viewed as consisting of n molecules of weight one and N-n molecules of weight zero. Weight-one molecules are analogous to electrons in their higher energy state, while weight-zero molecules are analogous to electrons in their lower energy state. More generally, fluids consist of non-interacting molecules of various weights. It is shown that, not only the average value of the work produced per cycle, but also its fluctuations, are the same for mechanical engines and quantum (Otto) heat engines. The reversible Carnot cycles are approached through the consideration of multiple sub-reservoirs.Comment: RevTeX 9 pages, 4 figures, paper shortened, improved presentatio