Next Article in Journal
Conditional Dependence between Oil Prices and Exchange Rates in BRICS Countries: An Application of the Copula-GARCH Model
Previous Article in Journal
Stock Investment and Excess Returns: A Critical Review in the Light of the Efficient Market Hypothesis
Previous Article in Special Issue
Arbitrage Free Approximations to Candidate Volatility Surface Quotations
Article Menu
Issue 2 (June) cover image

Export Article

Open AccessArticle

Volatility Integration in Spot, Futures and Options Markets: A Regulatory Perspective

1
Symbiosis Institute of Business Management (Pune), Pune 412115, India
2
Symbiosis International, Deemed University, Pune 412115, India
*
Author to whom correspondence should be addressed.
J. Risk Financial Manag. 2019, 12(2), 98; https://doi.org/10.3390/jrfm12020098
Received: 30 April 2019 / Revised: 24 May 2019 / Accepted: 28 May 2019 / Published: 9 June 2019
(This article belongs to the Special Issue Option Pricing)
  |  
PDF [315 KB, uploaded 20 June 2019]

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. View Full-Text
Keywords: GMM; structural breaks; volatility; integration; policy initiatives GMM; structural breaks; volatility; integration; policy initiatives
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited (CC BY 4.0).
SciFeed

Share & Cite This Article

MDPI and ACS Style

Rastogi, S.; Athaley, C. Volatility Integration in Spot, Futures and Options Markets: A Regulatory Perspective. J. Risk Financial Manag. 2019, 12, 98.

Show more citation formats Show less citations formats

Note that from the first issue of 2016, MDPI journals use article numbers instead of page numbers. See further details here.

Related Articles

Article Metrics

Article Access Statistics

1

Comments

[Return to top]
J. Risk Financial Manag. EISSN 1911-8074 Published by MDPI AG, Basel, Switzerland RSS E-Mail Table of Contents Alert
Back to Top