Application of Put Call Parity Formula on a 3 Month OMX Stockholm 30 Index Option Contract to Show Any Evidence of Arbitrage

In this article, we analyze the put call parity formula on a 3 month OMX Stockholm 30 index option contract to show any evidence of arbitrage. The put – call parity shows the relationship between a call and a put option with the same expiration, strike and share prices. Price differentials persist because of market imperfections. Arbitrageurs faced with a price differential will buy in a low price market and sell in the higher price market to make a profit. Arbitrageurs or rational investors would open a short position to this expensive 3 month OMX Stockholm 30 index option contract and simultaneously purchase the same or very similar option contract in another market at a lower price to hedge their risks. The effect of this selling by arbitrageurs is to bring the price of the overpriced 3 month option contract down to its fundamental value. Our results show that arbitrage is limited in the derivatives index option market