Investigating DAX Option Prices Below Intrinsic Value
Summary
The document investigates apparent cases where Eurex DAX index put options traded below their intrinsic value when compared with the official 17:30 DAX close. The author reports that comparing the same options with FDAX futures levels removes the discrepancy, raising questions about which reference price and timestamp are appropriate for analysis.
After reviewing some outliers, the author finds that certain discrepancies can be resolved, while others remain: some observed option prices appear below Black–Scholes values even with very low volatility assumptions. The anomalies cluster during a period of sharply rising volatility. The discussion offers possible explanations—market dislocations or data errors—but does not establish which is correct. It highlights the need to check settlement conventions, price timestamps, underlying references, and data quality before interpreting apparent arbitrage or inferring mispricing.
Key ideas
- Comparing option prices with an index close and with futures levels can produce different apparent intrinsic values.
- Some apparent pricing discrepancies may disappear when individual outliers are rechecked.
- Prices that remain below model values may reflect data problems or temporary market dislocations.
- Timing and reference-price conventions matter when calculating implied volatility.
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# Mismatch Between DAX Options Market Prices and Theoretical Values # Mismatch Between DAX Options Market Prices and Theoretical Values For edit see below. I'm currently working with DAX Options (ODAX on EUREX), and according to the specifications, the underlying is the DAX index. For options pricing, I'm using the official daily close (17:30 CET), and for the DAX index itself, I'm also pulling the 17:30 value. However, I'm observing a recurring issue: the ODAX option I'm looking at is trading below it's intrinsic value some days, which seems inconsistent. This shouldn't happen in a rational market unless there's some underlying reason. The specifics of the option are as follows: Put/23600/16May Interestingly, if I compare the options to the FDAX futures instead of the DAX index, this mismatch disappears — which seems odd, since the ODAX specs clearly state that the underlying is the DAX, not the FDAX. Has anyone encountered this discrepancy? Is there a known reason ODAX options might price off futures levels instead of spot, or could this be a data or timing misalignment? Any insight would be appreciated. EDIT: Thanks to the comments, I now understand that it is possible for an option to trade below intrinsic value under certain conditions. I went back and tested each of the apparent outliers, and in some cases the discrepancy was resolved. However, a subset of options still appear significantly underpriced — for example, some market prices are lower than what a Black-Scholes model would imply even with an extremely low volatility input (e.g., 0.01). The only plausible explanation I’m left with at this point is data errors. For context, I’m solving for implied volatility using the 17:30 DAX close and the 17:30 options close (per EUREX specifications), so timing misalignment shouldn't be the issue. Interestingly, most of these anomalies occur in early to mid April, a period when volatility increased sharply. It’s possible that the market briefly mispriced certain options during this spike, though I can’t fully rule out data issues either. If anyone has encountered similar behavior or has ideas on alternative explanations, I’d appreciate any thoughts.
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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.