T. Andersen, Oleg Bondarenko, V. Todorov, George Tauchen
We analyze the high-frequency dynamics of S&P 500 equity-index option prices by constructing an assortment of implied volatility measures. This allows us to infer the underlying fine structure behind the innovations in the latent state variables driving the movements of the volatility surface. In particular, we focus attention on implied volatilities covering a wide range of moneyness (strike/underlying stock price), which load differentially on the different latent state variables. We conduct a similar analysis for high-frequency observations on the VIX volatility index as well as on futures written on it. We find that the innovations in the risk-neutral intensity of the negative jumps in the S&P 500 index over small time scales are best described via non-Gaussian shocks, i.e., jumps. On the other hand, the innovations over small time scales of the diffusive volatility are best modeled as Gaussian with occasional jumps.
{"title":"The Fine Structure of Equity-Index Option Dynamics","authors":"T. Andersen, Oleg Bondarenko, V. Todorov, George Tauchen","doi":"10.2139/ssrn.2350997","DOIUrl":"https://doi.org/10.2139/ssrn.2350997","url":null,"abstract":"We analyze the high-frequency dynamics of S&P 500 equity-index option prices by constructing an assortment of implied volatility measures. This allows us to infer the underlying fine structure behind the innovations in the latent state variables driving the movements of the volatility surface. In particular, we focus attention on implied volatilities covering a wide range of moneyness (strike/underlying stock price), which load differentially on the different latent state variables. We conduct a similar analysis for high-frequency observations on the VIX volatility index as well as on futures written on it. We find that the innovations in the risk-neutral intensity of the negative jumps in the S&P 500 index over small time scales are best described via non-Gaussian shocks, i.e., jumps. On the other hand, the innovations over small time scales of the diffusive volatility are best modeled as Gaussian with occasional jumps.","PeriodicalId":306457,"journal":{"name":"ERN: Futures (Topic)","volume":"188 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-07-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121076310","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The extreme price movements in the three US wheat futures markets in 2008 and 2011 can be largely explained by fundamental developments. But different price reactions in those wheat futures markets raise doubt whether only supply and demand moved wheat futures prices. The question arises whether the different behaviour of market participants is also essential for price discovery. This study examines the influence of different market structures on prices of the three most important US wheat futures markets. For this purpose, trader's positions of the disaggregated commitments of traders (DCoT) report from June 2006 to December 2013 are analysed. Results reveal that during the price peak, the behaviour of hedgers and other market participants at the Minneapolis Grain Exchange contributed to the decoupling of wheat futures prices from the fundamental development. This demonstrates that market structure is of great importance for price development in futures markets.
{"title":"The Impact of Market Participants’ Interaction on Futures Prices: Comparing Three U.S. Wheat Futures Markets","authors":"David Bosch","doi":"10.2139/ssrn.2433952","DOIUrl":"https://doi.org/10.2139/ssrn.2433952","url":null,"abstract":"The extreme price movements in the three US wheat futures markets in 2008 and 2011 can be largely explained by fundamental developments. But different price reactions in those wheat futures markets raise doubt whether only supply and demand moved wheat futures prices. The question arises whether the different behaviour of market participants is also essential for price discovery. This study examines the influence of different market structures on prices of the three most important US wheat futures markets. For this purpose, trader's positions of the disaggregated commitments of traders (DCoT) report from June 2006 to December 2013 are analysed. Results reveal that during the price peak, the behaviour of hedgers and other market participants at the Minneapolis Grain Exchange contributed to the decoupling of wheat futures prices from the fundamental development. This demonstrates that market structure is of great importance for price development in futures markets.","PeriodicalId":306457,"journal":{"name":"ERN: Futures (Topic)","volume":"35 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-05-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115252956","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The upward bias of the widely used Thompson-Waller estimator has been pointed out in the literature. In contrast, the current article provides a case the estimator would have downward bias: frequent continuous arrivals of orders in the same side associated with a small price change. The upward bias might be cancelled out by downward bias, and the estimator might perform better than the other methods such as Wang-Yau-Baptiste used by the U.S. Commodity Futures Trading Commission. The high-frequency data of the emissions market allows us to provide an empirical evidence.
{"title":"Measuring the Bid-Ask Spread: A Note on the Potential Downward Bias of the Thompson-Waller Estimator","authors":"Yoichi Otsubo","doi":"10.2139/ssrn.2220834","DOIUrl":"https://doi.org/10.2139/ssrn.2220834","url":null,"abstract":"The upward bias of the widely used Thompson-Waller estimator has been pointed out in the literature. In contrast, the current article provides a case the estimator would have downward bias: frequent continuous arrivals of orders in the same side associated with a small price change. The upward bias might be cancelled out by downward bias, and the estimator might perform better than the other methods such as Wang-Yau-Baptiste used by the U.S. Commodity Futures Trading Commission. The high-frequency data of the emissions market allows us to provide an empirical evidence.","PeriodicalId":306457,"journal":{"name":"ERN: Futures (Topic)","volume":"77 6 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-02-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130787530","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In India, spot market return, number of contract, turnover and volatility of the futures market are having short run relationship with futures market return. On the basis of the empirical analysis it is clearly found that spot market is the key factor which predicts the movement of futures market and the trader can depend upon volatility and trading volume to take any decision on futures market trading. In precise, spot market return, volatility of the futures market, turnover and number of contract are the determinants of futures market in India. Spot market return is the major determinants of futures market, indeed variables from futures market itself like open interest and turnover of futures market can be taken in to consideration for determining the futures market return. The empirical study is made with spot return, futures return, volatility of futures return, number of contract, trading volume and open interest of S&P CNX Nifty and its underlying index Nifty-50 for the period 12th June 2000- 30th June 2011 by applying the VAR Granger Causality/Block Exogenity Test.
{"title":"Determinants of Futures Market in India","authors":"Babu Jose, D. Lazăr, K. Rao","doi":"10.2139/ssrn.2255468","DOIUrl":"https://doi.org/10.2139/ssrn.2255468","url":null,"abstract":"In India, spot market return, number of contract, turnover and volatility of the futures market are having short run relationship with futures market return. On the basis of the empirical analysis it is clearly found that spot market is the key factor which predicts the movement of futures market and the trader can depend upon volatility and trading volume to take any decision on futures market trading. In precise, spot market return, volatility of the futures market, turnover and number of contract are the determinants of futures market in India. Spot market return is the major determinants of futures market, indeed variables from futures market itself like open interest and turnover of futures market can be taken in to consideration for determining the futures market return. The empirical study is made with spot return, futures return, volatility of futures return, number of contract, trading volume and open interest of S&P CNX Nifty and its underlying index Nifty-50 for the period 12th June 2000- 30th June 2011 by applying the VAR Granger Causality/Block Exogenity Test.","PeriodicalId":306457,"journal":{"name":"ERN: Futures (Topic)","volume":"9 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-12-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125556757","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
According to the expectations hypothesis, the forward rate is equal to the expected future short rate, an argument that is not supported by most empirical studies that demonstrate the existence of term premiums. An alternative arbitrage-free term structure model for reviewing the expectations hypothesis is presented and tractable expressions for time-varying term premiums are obtained. The model is constructed under the real-world probability measure and depends on two stochastic factors: the short rate and the market price of risk. The model suggests that for short maturities the short rate contribution determines the term premiums, while for longer maturities, the contribution of the market price of risk dominates.
{"title":"Alternative Term Structure Models for Reviewing Expectations Puzzles","authors":"Christina Sklibosios Nikitopoulos, E. Platen","doi":"10.2139/ssrn.2167964","DOIUrl":"https://doi.org/10.2139/ssrn.2167964","url":null,"abstract":"According to the expectations hypothesis, the forward rate is equal to the expected future short rate, an argument that is not supported by most empirical studies that demonstrate the existence of term premiums. An alternative arbitrage-free term structure model for reviewing the expectations hypothesis is presented and tractable expressions for time-varying term premiums are obtained. The model is constructed under the real-world probability measure and depends on two stochastic factors: the short rate and the market price of risk. The model suggests that for short maturities the short rate contribution determines the term premiums, while for longer maturities, the contribution of the market price of risk dominates.","PeriodicalId":306457,"journal":{"name":"ERN: Futures (Topic)","volume":"38 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133453446","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Korean Abstract: 동 연구는 원엔 및 원유로화 현물포지션(spot position)보유에 따른 환리스크관리를 위하여 원엔 및 원유로 통화선물시장의 직접헤지 유용성에 대한 실증분석을 실시하였다. 이를 위하여 2006년 5월 26일부터 2008년 9월 30일까지 한국증권선물거래소에 상장된 유로화 및 엔화 통화선물시장의 최근월물 자료와 현물시장자료를 이용하여 Ederington(1979)의 전통적인 최소분산모형과 Engle(1982)의 시간변동 ECT-ARCH모형을 추정하였다. 주요 실증분석결과는 다음과 같다. 첫째, 먼저, 원엔 현·선물 수준변수사이 뿐만 아니라 원유로 현·선물 수준변수사이에는 공적분(co-integration) 관계가 존재하는 것으로 나타났다. 둘째, 내표본기간동안 헤지성과분석결과에 의하면 동태적인 헤지모형의 헤지성과가 정태적인 헤지모형의 헤지효과보다 상대적으로 더 나은 것으로 나타났다. 셋째, 외표본기간동안 헤지성과분석결과에 의하면 정태적인 헤지모형의 헤지효과가 시간변동이변량 ECT-ARCH 모형의 헤지성과보다 상대적으로 더 나은 것으로 나타났다. 마지막으로 내표본 외표본기간 모두 원엔 통화선물의 헤지성과가 원유로 통화선물의 헤지성과보다 상대적으로 더 나은 것으로 나타났다. 이러한 외표본기간동안의 실증분석결과는 윤원철, 안현진(2004), 홍정효, 문규현(2004), 홍정효, 문규현(2007), 오세열(1996)등 기존의 원달러 선물 및 선도시장에 대한 헤지성과 분석결과와 일맥상통하는 것으로 나타났다.
English Abstract: We investigate the pertinent hedging ratios and hedge performance of Won/Euro and Won/Yen futures markets against the respective spot markets. For this purpose, we introduce the traditional minimum variance hedge model of Ederington(1979) and a bivariate ECT-ARCH model of Engle(1982). The sample period includes the period from May 26, 2006 to September 30, 2008. The major empirical results are as follows; First, there is long-term relationship between the level variables of the spot and futures markets. Considering the co-integration between the spot and cash markets, we incorporate the error correction term in ARCH models. Second, the hedge performance of the dynamic hedging model is relatively better than that of the static hedge model within the sample period but vice versa during the out-of sample period. Third, the hedge effectiveness of Won/Yen futures is much better than that of the Won/Euro futures market both within and out of sample periods. The hedge performances during the out of sample period are onsistent with the previous papers on Won/Dollar futures and forward markets.
Korean Abstract:该研究为管理日元及原油老化现货持仓(spot position)的汇率风险，对日元及原油货币期货市场的直接套期保值有效性进行了实证分析。为此，利用2006年5月26日至2008年9月30日在韩国证券期货交易所上市的欧元及日元货币期货市场的近期月物资料和现货市场资料，推定了Ederington(1979)的传统最小分散模型和Engle(1982)的时间变动ECT-ARCH模型。主要实证分析结果:首先，不仅是韩元对日元、期货水平变数之间，原油对期货水平变数之间也存在公共部分(co-integration)关系。第二，根据我标本期间的套期保值成果分析结果，动态套期保值模型的套期保值成果比静态套期保值模型的套期保值效果相对更好。第三，外标本期间套期保值成果分析结果显示，静态套期保值模型的套期保值效果比时间变动变量ECT-ARCH模型的套期保值成果相对更好。最后，除我的标本外，在标本期间，韩元货币期货的套期保值成果都是原油，比货币期货的套期保值成果相对更好。除此之外，标本期间的实证分析结果与尹元哲、安贤振(2004)、洪政孝、文奎铉(2004)、洪政孝、文奎铉(2007)、吴世烈(1996)等现有的韩元美元期货及对先导市场的对冲性分析结果是一脉相通的。英语Abstract: We investigate the pertinent hedging ratios and hedge performance of Won/Euro and Won/Yen futures markets against the respective spot markets。For this purpose, we introduce the traditional minimum variance hedge model of Ederington(1979) and a bivariate ECT-ARCH model of Engle(1982)。The sample period includes The period from May 26 2006 to September 30 2008。The major empirical results are as follows;First, there is long-term relationship between the level variables of the spot and futures markets。Considering the co-integration between the spot and cash markets, we incorporate the error correction term in ARCH models。the hedge performance of the dynamic hedging model is relatively better than that of the static hedge model within the sample period but vice versa during the out-of sample period。the hedge effectiveness of Won/Yen futures is much better than that of the Won/Euro futures market both within and out of sample periods。The hedge performances during The out of sample period are onsistent with The previous papers on Won/Dollar futures and forward markets。
{"title":"통화선물을 이용한 환위험관리 방안 연구: 원엔 및 원유로화 통화선물시장을 중심으로 (Estimation of the Hedge Performance of the Won/Yen Futures and Won/Euro Futures Markets)","authors":"Jung-Hyo Hong","doi":"10.2139/ssrn.3018307","DOIUrl":"https://doi.org/10.2139/ssrn.3018307","url":null,"abstract":"<b>Korean Abstract:</b> 동 연구는 원엔 및 원유로화 현물포지션(spot position)보유에 따른 환리스크관리를 위하여 원엔 및 원유로 통화선물시장의 직접헤지 유용성에 대한 실증분석을 실시하였다. 이를 위하여 2006년 5월 26일부터 2008년 9월 30일까지 한국증권선물거래소에 상장된 유로화 및 엔화 통화선물시장의 최근월물 자료와 현물시장자료를 이용하여 Ederington(1979)의 전통적인 최소분산모형과 Engle(1982)의 시간변동 ECT-ARCH모형을 추정하였다. 주요 실증분석결과는 다음과 같다. 첫째, 먼저, 원엔 현·선물 수준변수사이 뿐만 아니라 원유로 현·선물 수준변수사이에는 공적분(co-integration) 관계가 존재하는 것으로 나타났다. 둘째, 내표본기간동안 헤지성과분석결과에 의하면 동태적인 헤지모형의 헤지성과가 정태적인 헤지모형의 헤지효과보다 상대적으로 더 나은 것으로 나타났다. 셋째, 외표본기간동안 헤지성과분석결과에 의하면 정태적인 헤지모형의 헤지효과가 시간변동이변량 ECT-ARCH 모형의 헤지성과보다 상대적으로 더 나은 것으로 나타났다. 마지막으로 내표본 외표본기간 모두 원엔 통화선물의 헤지성과가 원유로 통화선물의 헤지성과보다 상대적으로 더 나은 것으로 나타났다. 이러한 외표본기간동안의 실증분석결과는 윤원철, 안현진(2004), 홍정효, 문규현(2004), 홍정효, 문규현(2007), 오세열(1996)등 기존의 원달러 선물 및 선도시장에 대한 헤지성과 분석결과와 일맥상통하는 것으로 나타났다.<br><br><b>English Abstract:</b> We investigate the pertinent hedging ratios and hedge performance of Won/Euro and Won/Yen futures markets against the respective spot markets. For this purpose, we introduce the traditional minimum variance hedge model of Ederington(1979) and a bivariate ECT-ARCH model of Engle(1982). The sample period includes the period from May 26, 2006 to September 30, 2008. The major empirical results are as follows; First, there is long-term relationship between the level variables of the spot and futures markets. Considering the co-integration between the spot and cash markets, we incorporate the error correction term in ARCH models. Second, the hedge performance of the dynamic hedging model is relatively better than that of the static hedge model within the sample period but vice versa during the out-of sample period. Third, the hedge effectiveness of Won/Yen futures is much better than that of the Won/Euro futures market both within and out of sample periods. The hedge performances during the out of sample period are onsistent with the previous papers on Won/Dollar futures and forward markets.","PeriodicalId":306457,"journal":{"name":"ERN: Futures (Topic)","volume":"2 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-12-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121858974","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper will argue that long-only investments in the commodity futures markets, specifically those represented by the GSCI, are only advisable under a well-defined circumstance. One needs to use a reliable indicator of scarcity before investing in commodities in order to improve the chances of earning positive returns. This indicator also assists a commodity investor in potentially avoiding huge losses that can result from investing in commodities during times of surplus. We will describe this indicator as well as note empirical and theoretical evidence for its use.
{"title":"Commodity Scarcity and the GSCI Futures Curve","authors":"H. Till","doi":"10.2139/ssrn.2628537","DOIUrl":"https://doi.org/10.2139/ssrn.2628537","url":null,"abstract":"This paper will argue that long-only investments in the commodity futures markets, specifically those represented by the GSCI, are only advisable under a well-defined circumstance. One needs to use a reliable indicator of scarcity before investing in commodities in order to improve the chances of earning positive returns. This indicator also assists a commodity investor in potentially avoiding huge losses that can result from investing in commodities during times of surplus. We will describe this indicator as well as note empirical and theoretical evidence for its use.","PeriodicalId":306457,"journal":{"name":"ERN: Futures (Topic)","volume":"3 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2000-08-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117326990","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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