The internal efficiency of Index Option Markets:Tests on the Italian Market

Abstract

The aim of the present paper is to provide evidence on the internal market efficiency of the Italian index option market. To this end a model-free approach is taken, whereby strategies involving only options are tested by means of a high frequency dataset covering the period 1 September – 31 December 2002. This piece of research thus completes our previous analysis (Brunetti and Torricelli(2003, 2006)), which focused on the cross-market efficiency of the same market. The results obtained further support the efficiency of one of the most important index options markets in Europe.index options;internal market efficiency; no-arbitrage; option spreads