Applications of Conic Optimization and Quadratic Programming in the Investigation of Index Arbitrage in the Thai Derivatives and Equity Markets
This research seeks to investigate the frequency and
profitability of index arbitrage opportunities involving the SET50
futures, SET50 component stocks, and the ThaiDEX SET50 ETF
(ticker symbol: TDEX). In particular, the frequency and profit of
arbitrage are measured in the following three arbitrage tests: (1)
SET50 futures vs. ThaiDEX SET50 ETF, (2) SET50 futures vs.
SET50 component stocks, and (3) ThaiDEX SET50 ETF vs. SET50
component stocks are investigated. For tests (2) and (3), the problems
involve conic optimization and quadratic programming as subproblems.
This research is first to apply conic optimization and
quadratic programming techniques in the context of index arbitrage
and is first to investigate such index arbitrage in the Thai equity and
derivatives markets. Thus, the contribution of this study is twofold.
First, its results would help understand the contribution of the
derivatives securities to the efficiency of the Thai markets. Second,
the methodology employed in this study can be applied to other
geographical markets, with minor adjustments.
[1] Bae, K.-H., Chan, K. & Cheung, Y.-L. (1998). The profitability of index
futures arbitage: Evidence from bid-ask quotes. The Journal of Futures
Markets,18, 743-763.
[2] Bolshakova, I. and Kovalev, M., Girlich, E. (2009). Portfolio optimization
problems: A survey. Fakultat fur Mathematik working paper.
[3] Chung, P. Y. (1991) A transactions data test of stock index futures market
efficiency and index arbitrage profitability. The Journal of Finance, XLVI,
1791-1809.
[4] Cummings, J. R. & Frino, A. (2008) Index arbitrage and the pricing
relationship between Australian stock index futures and their underlying
shares. 21st Australasian Finance and Banking Conference 2008
proceeding.
[5] Fernando, K. V. Practical portfolio optimization. The Numerical
Algorithms Group, Ltd White Paper.
[6] Klemkosky, R. C. & Lee, J. H. (1991) The intraday ex post and ex ante
profitability of index arbitrage. The Journal of Futures Markets, 11, 291-
311.
[7] Lobo, M. S., Fazel, M. & Boyd, S. (2007) Portfolio optimization with
linear and fixed transaction costs. Annals of Operations Research, 152,
341-365
[8] Neal, R. (1996) Direct tests of index arbitrage models. Journal of
Financial and Quantitative Analysis, 31, 541-562.
[9] Richie, N., Daigler R., and Gleason K. (2008) The limits to stock index
arbitrage: Examining S&P 500 futures and SPDRS. Journal of Futures
Markets, 28(12), 1182-1205.
[1] Bae, K.-H., Chan, K. & Cheung, Y.-L. (1998). The profitability of index
futures arbitage: Evidence from bid-ask quotes. The Journal of Futures
Markets,18, 743-763.
[2] Bolshakova, I. and Kovalev, M., Girlich, E. (2009). Portfolio optimization
problems: A survey. Fakultat fur Mathematik working paper.
[3] Chung, P. Y. (1991) A transactions data test of stock index futures market
efficiency and index arbitrage profitability. The Journal of Finance, XLVI,
1791-1809.
[4] Cummings, J. R. & Frino, A. (2008) Index arbitrage and the pricing
relationship between Australian stock index futures and their underlying
shares. 21st Australasian Finance and Banking Conference 2008
proceeding.
[5] Fernando, K. V. Practical portfolio optimization. The Numerical
Algorithms Group, Ltd White Paper.
[6] Klemkosky, R. C. & Lee, J. H. (1991) The intraday ex post and ex ante
profitability of index arbitrage. The Journal of Futures Markets, 11, 291-
311.
[7] Lobo, M. S., Fazel, M. & Boyd, S. (2007) Portfolio optimization with
linear and fixed transaction costs. Annals of Operations Research, 152,
341-365
[8] Neal, R. (1996) Direct tests of index arbitrage models. Journal of
Financial and Quantitative Analysis, 31, 541-562.
[9] Richie, N., Daigler R., and Gleason K. (2008) The limits to stock index
arbitrage: Examining S&P 500 futures and SPDRS. Journal of Futures
Markets, 28(12), 1182-1205.
@article{"International Journal of Business, Human and Social Sciences:59770", author = "Satjaporn Tungsong and Gun Srijuntongsiri", title = "Applications of Conic Optimization and Quadratic Programming in the Investigation of Index Arbitrage in the Thai Derivatives and Equity Markets", abstract = "This research seeks to investigate the frequency and
profitability of index arbitrage opportunities involving the SET50
futures, SET50 component stocks, and the ThaiDEX SET50 ETF
(ticker symbol: TDEX). In particular, the frequency and profit of
arbitrage are measured in the following three arbitrage tests: (1)
SET50 futures vs. ThaiDEX SET50 ETF, (2) SET50 futures vs.
SET50 component stocks, and (3) ThaiDEX SET50 ETF vs. SET50
component stocks are investigated. For tests (2) and (3), the problems
involve conic optimization and quadratic programming as subproblems.
This research is first to apply conic optimization and
quadratic programming techniques in the context of index arbitrage
and is first to investigate such index arbitrage in the Thai equity and
derivatives markets. Thus, the contribution of this study is twofold.
First, its results would help understand the contribution of the
derivatives securities to the efficiency of the Thai markets. Second,
the methodology employed in this study can be applied to other
geographical markets, with minor adjustments.", keywords = "Conic optimization, Equity index arbitrage, Executionlags, Quadratic programming, SET50 index futures, ThaiDEX SET50ETF, Transaction costs", volume = "4", number = "6", pages = "1229-13", }