Tuning in to Frequencies: How Global Assets Align with U.S. Put–Call Parity Residuals

Battle Count: 73

The paper is highly relevant to options market making, index arbitrage, and intermediary capital allocation strategies. The carry gap as a measurable wedge between option-implied and OIS discount factors provides a diagnostic for parity-enforcement costs. The finding that global asset returns (developed ex-U.S. equity, international bonds, gold) explain residual carry-gap variation suggests that quantitative strategies enforcing put-call parity should account for cross-asset opportunity costs. However, the paper does not propose a trading strategy or demonstrate economic value. The relevance is more to understanding the economics of parity enforcement and calibrating carry-space models than to direct signal generation for trading.

Implementation requires: (1) processing minute-level NBBO option quotes and constructing synthetic forwards; (2) bootstrapping OIS curves and interpolating maturity-matched discount factors; (3) identifying option-implied discount factors via cross-sectional regression within date-maturity cells; (4) computing rolling OLS slopes of ETF log-price paths with specific lookback windows; (5) constructing GBM terms combining volatility, tau, and opportunity-cost components; (6) estimating HAC regressions and performing LOYO validation; (7) implementing robustness tests including dollar adjustment, PCA, residualization, and nested horizon selection. The data pipeline is non-trivial and requires careful handling of option cross-sections, OIS curve construction, and timing conventions.

The paper provides detailed methodology including data processing steps, regression specifications, and evaluation protocols in Appendix A. However, the primary option data source (ThetaData) is proprietary and requires a subscription. OIS data is credited to Michele Azzone (Politecnico di Milano) and may not be publicly available. NFCI and DTWEXBGS are available via FRED. The MATLAB R2025b implementation is described but no code repository is provided. The rolling OLS slope construction and carry-gap identification pipeline are well-documented but require significant implementation effort.