Two essays on the mispricing of the S&P 500 futures contract

Scope and method of study. The object of this thesis is to investigate the issue of index futures mispricing. The S&P 500 futures contract has been found to be mispriced through many time periods. In the first essay a methodology based upon the emerging science of Nonlinear Dynamics is used to test for nonlinear determinism in the S&P 500 mispricing contract. In the second essay a simulation methodology using DYNAMO is applied to simulate the arbitrage process under conditions of differential trading delays and the path of the simulated mispricing series is observed.;Findings and conclusions. The results of the empirical testing procedure using the Brock, Dechert Schienkman Statistic indicate that the mispricing series exhibits nonlinear serial dependence. The simulation studies show that the introduction of differential trading delays to an otherwise equilibrating arbitrage system leads to extended mispricing of the simulated futures contract.