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We also conduct a literature survey regarding derivatives arbitrage. Arbitrage
opportunities result from mispricing between different derivatives or between derivatives and
their underlying assets. In this study we initially survey the related literature about the
transaction limits that have significant impacts on arbitrage. Relevant studies reveal that
regulations on transaction cost, short sale restriction, margin limitation, and liquidity
sufficiency have significant impacts on derivatives arbitrage. We then collect the related
studies concerning Intra-market and Inter-market arbitrage strategies. Some related articles
indicate that information variables, government policy, and information transmission
efficiency strongly influence how arbitrage opportunities are generated. Finally, we survey
studies that investigate some special topics of arbitrage, such as whether or not arbitrage
timing, contract maturity effect, and settlement effect have an impact on arbitrage trading.
4. Conclusion and Suggestions for Future Research
By surveying many papers regarding derivatives pricing, hedging, and arbitrage in
Taiwan, we find superior academic accomplishments have been generated in these issues, but
there is still room for improvement, and other avenues are open for future research direction.
Concerning derivatives pricing, potential topics for future research could be using Inter-
disciplinary methodologies to solve derivatives pricing problems, pricing newly developed
and important derivatives such as volatility derivatives, and pricing complicated contracts
like weather or catastrophic derivatives. For derivatives hedging and arbitrage, some topics
are also promising, like using new methodologies to measure optimal hedge ratios or delta
hedging indicators, investigating new arbitrage opportunities for new products, and how to
improve hedge effectiveness by introducing new derivative contracts.
Looking to the future, financial innovations are indispensable and essential for trading
and investment success in the financial industry. Hence, we hope that future domestic studies
in these fields can make more contributions to innovations for Taiwan’s financial industry in
addition to those promising research topics described above.