No abstract

The purpose of the present study is to provide evidence on the market efficiency of the S&P CNX Nifty index options traded on the National Stock Exchange (NSE) of India, using the Black–Scholes model and dynamic hedging strategy. Till today, a limited literature exists on the market efficiency of the Indian index option by using a dynamic hedging strategy. Thus, an effort has been made in constructing the dynamic hedging strategy to examine whether the violations obtained from the Black–Scholes model can be covered by the costs in setting up the dynamic hedge strategy. The data collected in this study consist of daily closing prices of S&P CNX Nifty index options contracts from 1 April 2008 to 31 March 2012. The results demonstrate that, although the sensitivity analysis of violations with respect to liquidity, time to maturity and moneyness show that the majority of violations in options are exploitable, the proportion of exploitable violations severely falls after considering the transaction cost, as most of the profits were wiped out and showing negative profits. Thus, although the Indian index options market shows traces of inefficiency, in totality, it is suggested that the Indian index options market is efficient as a majority of violations are un-exploitable after incorporating transaction cost.

The purpose of the present study is to examine the cross market efficiency of the Indian index options, futures and cash market by testing S&P CNX Nifty index options, by Put-Call Parity condition using spot index values and futures prices. Over a period from April 01, 2008 to March 31, 2012, the daily closing prices of nifty index options contracts, spot values and futures contracts have been used in this research. The results of the sensitivity analysis of violations with respect to time to maturity and moneyness demonstrates that the majority of violations in options contract are exploitable, however, the proportion of exploitable violations severely falls after considering the transaction cost, as most of the profits were wiped out and showing negative profits. Thus, although the Indian index options market shows traces of inefficiency, in totality it is suggested that the Indian index options market is efficient as majority of violations are un-exploitable after incorporating transaction cost.

More and more Indian firms are becoming global in their operations - through exports and imports, by setting up manufacturing plants abroad and through joint-ventures and tie-ups. In this process most of them are dealing with multiple currencies. This has increased the overall exposure of Indian firms to foreign exchange-rate fluctuations. How have they been coping with the risk associated with the exchange-rate fluctuations? In order to explore this, the authors have engaged the case-research method. The authors studied 64 cases for this purpose. Of these 27, firms have been handling forex exposure and/or have had at least one near-crisis situation in the past. The remaining 37 cases are Indian firms from sectors like Textiles, IT, Gems and Jewelry, Pharma, Engineering, FMCG and Energy. The study focused on the context of these firms, their business model, the sources of forex exposure and the policies and practices of managing forex exposure risk. The authors have tried to identify the basic factors underlying the forex exposure and to identify patterns, if any, in the coping-strategy. They conclude that the insights would help formulate a generic strategy.