טכניון מכון טכנולוגי לישראל
הטכניון מכון טכנולוגי לישראל - בית הספר ללימודי מוסמכים  
M.Sc Thesis
M.Sc StudentShmuel Danan
SubjectObtaining Arbitrage by the Use of MAOF Options
DepartmentDepartment of Industrial Engineering and Management
Supervisor Professor Reisman Haim


Abstract

The purpose of this thesis is to examine the Box Spread arbitrage strategy using options on the Maof Index of the Tel Aviv Stock Market.

Empirical research to test the results of box spread strategy is relatively simple to carry out once the appropriate data have been assembled. Previous studies examining the Box Spread strategy contained a number of problems. The main problem was the use of the last prices offered on the market. The use of these prices for the creation of the Box Spread strategy was made despite the fact that it was impossible to know whether the prices had been effective at the time of strategy creation.

The present research utilized a computer program that recorded the price offers of options on the Tel Aviv 25 Index in real time (approximately every four seconds). The sample includes data on two months of trading, starting seven months after the beginning of the simultaneous trading on Maof option in October 1999. Since October 1999, the options trading is managed by a computerized system and the price offers presented by traders in the options market are effective for as long as the bidder does not cancel them or until the offer receives a counteroffer equal to it. Therefore, the offers included in the database of this research were effective at the time of their recording.  In addition, the options on the Tel Aviv 25 Index are European options. This characteristic, combined with computerized trading method, makes the data on the Maof options ideal for the examination of the Box Spread arbitrage strategy.

Unlike the other studies, this work does not only identify the opportunities for arbitrage and calculates their profits, but also characterizes these opportunities. The research also addressed a number of issues related to the underlying asset in an arbitrage opportunity.