The comparison of pricing performances between cost of carry model and imperfect market model
The comparison of pricing performances between cost of carry model and imperfect market model
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2008
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Assumption University
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eng
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Assumption University. Martin de Tours School of Management and Economics
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AU Journal of Management 6, 2 (July-December 2008), 23-32
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Abstract
Choosing the right pricing approach is the key to deriving the true derivatives prices. This
paper aims to compare the pricing performance of the cost of carry model and the imperfect market
model in pricing the SET 50 index futures prices. This study replicates the study of Wang (2007) that
compares the futures pricing performances of the cost of carry model and the imperfect market
model in the Stock Exchanges of Japan, Hong Kong, Korea, and Taiwan. By using the mean percent-
age errors and the mean absolute percentage errors as criteria in measuring the pricing perfor-
mances of two models, the empirical results indicate that the highly impeifect financial market like
SET 50 index futures market is relatively mispriced based on the model of perfect market assump-
tion, suggesting that the suitable approach in pricing the SET 50 index futures is the imperfect
market model. Relying on the perfect market assumption evidences an enormous misprice especially
when the calculation is based on the calendar days. Therefore practitioners should identify the ap-
propriate pricing method before estimating the theoretical prices of stock index futures.
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In English ; only abstract in English
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