DR. SHAILESH RASOTGI

Title:Volatility Integration in Spot, Futures and Options Markets: A Regulatory PerspectiveYear: 2019
Authors: Shailesh Rastogi and Chaitaly Athaley Journal: Journal of Risk and Financial Management Publication date: 2019 June Publisher: Journal of Risk and Financial Management URL: click here Abstract The aim of this paper is to study the integration of volatility in the three markets, viz. spot, futures and options, in order to provide input for hedging purposes and the formulation of policies for derivatives. The generalized method of moments (GMM) is used to capture the simultaneous equation modelling of volatility in the three markets. The integration of the volatility in the three markets is also tested for structural breaks. The main finding of the paper is that the volatility in the options market is not associated with volatility in spot and futures market. However, volatility in spot and futures markets are associated with each other. As a consequence, investors can use options for hedging purposes and policy makers do not need to be concerned about the imminent impact of options markets on spot markets. To the best of the authors’ knowledge, there is no other study which discusses the integration of volatility in the three markets. Moreover, the finding of this paper that the options market behaves differently compared to the futures market has also not been discussed in earlier studies.

Title:Volatility Integration in Spot, Futures and Options Markets: A Regulatory PerspectiveYear: 2019

Authors: Shailesh Rastogi and Chaitaly Athaley
Journal: Journal of Risk and Financial Management
Publication date: 2019 June
Publisher: Journal of Risk and Financial Management
URL: click here

Abstract

The aim of this paper is to study the integration of volatility in the three markets, viz. spot, futures and options, in order to provide input for hedging purposes and the formulation of policies for derivatives. The generalized method of moments (GMM) is used to capture the simultaneous equation modelling of volatility in the three markets. The integration of the volatility in the three markets is also tested for structural breaks. The main finding of the paper is that the volatility in the options market is not associated with volatility in spot and futures market. However, volatility in spot and futures markets are associated with each other. As a consequence, investors can use options for hedging purposes and policy makers do not need to be concerned about the imminent impact of options markets on spot markets. To the best of the authors’ knowledge, there is no other study which discusses the integration of volatility in the three markets. Moreover, the finding of this paper that the options market behaves differently compared to the futures market has also not been discussed in earlier studies.

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