Put-call parity and cross-markets efficiency in the index options markets: evidence from the Italian market

The success of index option markets has fostered empirical research on their efficiency. While most of the literature focuses on US markets, European markets have not received much attention. The aim of the present paper is to provide new evidence on the Italian index options by means of a high frequency data set covering the period September 1-December 31, 2002. The methodology is based on model-free tests of no-arbitrage relationships with special attention to the Put-Call Parity (PCP). Our analysis, which in line with the literature highlights the role of frictions, supports a substantial and increased efficiency of the Italian market.