Execution Feasibility and Limits to Arbitrage: High‐Frequency Evidence From KOSPI 200 Box Spreads

ABSTRACT This study examines whether apparent box‐spread mispricing in the KOSPI 200 index options market translates into execution‐feasible arbitrage after realistic implementation frictions are imposed. Using high‐frequency trade‐and‐quote data from the Korea Exchange, we construct executable box‐spread positions from best bid and ask quotes and incorporate transaction costs, margin funding costs, and execution delays. Most quote‐level violations disappear once these frictions are imposed. The remaining opportunities are few, larger in conditional profitability, and concentrated during market‐stress periods. Dense‐sampling tests using 5‐ and 1‐second grids uncover more quote‐level violations but preserve the distinction between apparent mispricing and executable arbitrage. Evidence from an alternative non‐COVID window further shows that the intensity and credit–debit composition of surviving opportunities vary across market states. Overall, implementation frictions, execution timing, capital requirements, and market state jointly determine the boundary between mispricing and arbitrage.