The market price of futures and options is set by the orders of sellers and buyers, and it does not always equal the theoretical price calculated from conditions. For options, the theoretical price is generally obtained with the Black-Scholes model1.

For Nikkei 225 Futures, one of the equity index futures, the theoretical price is presented as one guide to whether the futures are cheap or expensive compared with the current Nikkei Stock Average2. Osaka Exchange says that when the gap between the actual futures price and the theoretical price reaches a certain level, arbitrage trades are made that sell the overpriced side and buy the underpriced side3. The theoretical basis is the difference between the spot price and the futures price calculated as a theoretical value4.

Consider a hypothetical example in which the theoretical price is 30,000 yen and the market futures price is 30,100 yen. The market price is 100 yen higher. If it is 29,900 yen, the market price is 100 yen lower.

Notes

  1. Japan Exchange Group, "理論価格" (Theoretical price), in its glossary (in Japanese). ↩

  2. Japan Exchange Group, "商品概要（日経225先物）" (Product overview (Nikkei 225 Futures)) (in Japanese), "理論価格" (Theoretical price). It says futures prices are basically set by supply and demand, and that the theoretical price of Nikkei 225 Futures is one guide. ↩

  3. Osaka Exchange, "利用方法（先物）" (How to use (futures)), in "北浜投資塾" (Kitahama Investment School) (in Japanese), "理論価格と裁定取引" (Theoretical price and arbitrage). ↩

  4. Japan Exchange Group, "理論ベーシス" (Theoretical basis), in its glossary (in Japanese). ↩