South Asian Journal of Management

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Pricing of Options in Indian Derivatives Market:A Survey of Trading Member Organizations


Affiliations
1 Indian Institute of Management (IIM), Prabandh Nagar, Off Sitapur Road, Lucknow 226013, India
2 Department of Management Studies, Indian Institute of Technology Delhi (IIT Delhi), Hauz Khas, New Delhi 16, India
     

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This study examines the opinion of trading member organizations/brokerage firms on the state of options pricing in Indian securities market. The brokerage firms based at Delhi and Mumbai which are active in Futures & Options (F&O) segment constituted population for the study. The data has been collected by administering a survey questionnaire. Also, personal visits were made to select firms based in Delhi. The questionnaire included questions on the select aspects relating to options pricing and betterment of the options market in India. The major findings of the survey are: (1) Investors predominantly use futures market and options market is a less attractive destination; (2) The use of options pricing models (e.g., Black-Scholes) has been confined to nearly one third of the respondents; (3) Nearly threefifth of the respondents were not aware of Put-Call Parity relationship; (4) Majority of the respondents agreed to the existence of arbitrage opportunities and designated them difficult to exploit due to dearth of liquidity and (5) A significant majority of respondents felt that existing measures on derivatives education are inadequate and recommended a separate educational body with Public-Private Partnership kind of ownership structure.
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  • Pricing of Options in Indian Derivatives Market:A Survey of Trading Member Organizations

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Authors

Alok Dixit
Indian Institute of Management (IIM), Prabandh Nagar, Off Sitapur Road, Lucknow 226013, India
Surendra S. Yadav
Department of Management Studies, Indian Institute of Technology Delhi (IIT Delhi), Hauz Khas, New Delhi 16, India
P. K. Jain
Department of Management Studies, Indian Institute of Technology Delhi (IIT Delhi), Hauz Khas, New Delhi 16, India

Abstract


This study examines the opinion of trading member organizations/brokerage firms on the state of options pricing in Indian securities market. The brokerage firms based at Delhi and Mumbai which are active in Futures & Options (F&O) segment constituted population for the study. The data has been collected by administering a survey questionnaire. Also, personal visits were made to select firms based in Delhi. The questionnaire included questions on the select aspects relating to options pricing and betterment of the options market in India. The major findings of the survey are: (1) Investors predominantly use futures market and options market is a less attractive destination; (2) The use of options pricing models (e.g., Black-Scholes) has been confined to nearly one third of the respondents; (3) Nearly threefifth of the respondents were not aware of Put-Call Parity relationship; (4) Majority of the respondents agreed to the existence of arbitrage opportunities and designated them difficult to exploit due to dearth of liquidity and (5) A significant majority of respondents felt that existing measures on derivatives education are inadequate and recommended a separate educational body with Public-Private Partnership kind of ownership structure.