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Lever up! An analysis of options trading in leveraged ETFs Journal of Futures Markets (IF 2.35) Pub Date : 2024-03-13 Collin Gilstrap, Alex Petkevich, Pavel Teterin, Kainan Wang
We examine options trading in leveraged Exchange‐Traded Funds (ETFs) and their impact on the performance of the underlying funds. Using implied volatility innovations in call and put options, we demonstrate that option signals from leveraged ETFs are robust predictors of the underlying ETFs' performance. While both levered and unlevered option signals forecast ETF returns, the levered signal is more
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SOFR term structure dynamics—Discontinuous short rates and stochastic volatility forward rates Journal of Futures Markets (IF 2.35) Pub Date : 2024-03-11 Alan Brace, Karol Gellert, Erik Schlögl
The Secured Overnight Funding Rate (SOFR) has become the risk‐free rate benchmark in US dollars, thus term structure models should reflect key features exhibited by SOFR and forward rates implied by SOFR futures. We construct a multifactor, stochastic volatility term structure model which incorporates these features. Calibrating to options on SOFR futures, we achieve a reasonable fit to the market
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A model‐free approximation for barrier options in a general stochastic volatility framework Journal of Futures Markets (IF 2.35) Pub Date : 2024-03-11 Frido Rolloos, Kenichiro Shiraya
For a general stochastic volatility framework with correlation between the spot price and the instantaneous volatility, an analytical approximation for single barrier options with continuous monitoring is given. The approximation is expressed only in terms of market observable implied volatilities and prices. As such the approximation is independent of the specific form and number of parameters of
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Futures trading costs and market microstructure invariance: Identifying bet activity Journal of Futures Markets (IF 2.35) Pub Date : 2024-03-08 Ai Jun Hou, Lars L. Nordén, Caihong Xu
Market microstructure invariance (MMI) stipulates that trading costs of financial assets are driven by the volume and volatility of bets, but these variables are inherently difficult to identify. With futures transactions data, we estimate bet volume as the trading volume of brokerage firms that trade on behalf of their clients and bet volatility as the trade‐related component of futures volatility
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Journal of Futures Markets: Volume 44, Number 4, April 2024 Journal of Futures Markets (IF 2.35) Pub Date : 2024-03-05
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Quality issues of implied volatilities of index and stock options in the OptionMetrics IvyDB database Journal of Futures Markets (IF 2.35) Pub Date : 2024-03-05 Martin Wallmeier
For stock and index options in the United States, OptionMetrics records prices at 3:59 p.m., not 4:00 p.m. as assumed in previous literature. The resulting 1‐min time discrepancy with closing share prices creates artificial variability in implied volatility spreads and strongly affects market‐wide spreads. It leads to particularly large distortions at the onset of the COVID‐19 pandemic. For index options
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Financial regulatory arbitrage and the financialization of commodities Journal of Futures Markets (IF 2.35) Pub Date : 2024-02-26 Zunxin Zheng, Gaiyan Zhang, Yingzhao Ni
We explore the effects of financial regulatory arbitrage on commodity pricing. We examine two types of financial arbitrage: capital‐control arbitrage, in which commodities are imported to circumvent capital controls and profit from disparities in interest rates between domestic and international markets, and dual‐track interest‐rate arbitrage, in which commodities are utilized as collateral to capitalize
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Maximum order size and market quality: Evidence from a natural experiment in commodity futures markets Journal of Futures Markets (IF 2.35) Pub Date : 2024-02-22 Kun Peng, Zhepeng Hu, Michel A. Robe
We exploit a 2018 exchange‐mandated increase of the maximum order size in some—but, crucially, not all—US agricultural futures markets, to link exogenous constraints on order placement and execution, price volatility, and market liquidity. The old maximum size of 2500 contracts was binding: demand exists for placing and executing much larger orders. Limit‐order book depth at the best bid and ask increases
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Early exercise, implied volatility spread and future stock return: Jumps bind them all Journal of Futures Markets (IF 2.35) Pub Date : 2024-02-16 Ian Garrett, Adnan Gazi
We find that early exercise premiums of exchange-traded single-stock American puts, in excess of the GBM-world premium, can negatively predict future stock returns. Simulations suggest that asset-value jumps, especially the mean jump-size, can positively drive this excess premium, while jump-size can also negatively induce the implied volatility (IV) spread of equivalent American option-pairs. Empirically
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Risky times: Seasonality and event risk of commodities Journal of Futures Markets (IF 2.35) Pub Date : 2024-02-19 Dominik Boos
The seasonal risk of wheat, corn, and soybean is modeled by a novel seasonality filter based on a generalized ridge regression. Then, using a component GARCH model, seasonal risk is combined with event risk and a short‐term risk dynamics. The resulting model is robust, generates seasonal patterns related to the crop cycle, and significantly outperforms the standard GARCH(1,1) in terms of out‐of‐sample
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Market sentiment and price dynamics in weak markets: A comprehensive empirical analysis of the soybean meal option market Journal of Futures Markets (IF 2.35) Pub Date : 2024-02-19 Bo Yan, Mengru Liang, Yinxin Zhao
This study addresses key issues of market efficiency in weak global futures markets, focusing on the intricate relationship between market sentiment and options pricing. Employing rolling variance ratio tests and information‐sharing models for market dynamics analysis, and supplemented with Granger causality tests and impulse response findings, it reveals a significant, unidirectional impact of market
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The Bitcoin price and Bitcoin price uncertainty: Evidence of Bitcoin price volatility Journal of Futures Markets (IF 2.35) Pub Date : 2024-02-01 Nezir Köse, Hakan Yildirim, Emre Ünal, Boqiang Lin
This study examines the Bitcoin price by taking into account global factors, including the Chicago Board Options Exchange's Market Volatility Index (VIX), the US dollar index, the gold price, the oil price, and Bitcoin price volatility. The analysis is conducted using the structural vector autoregression (SVAR) model. The variance decomposition findings revealed that the influence of the VIX on the
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The convenience yield under commodity financialization Journal of Futures Markets (IF 2.35) Pub Date : 2024-01-31 Nikolaos T. Milonas, Evangelia K. Photina
A number of papers have dealt with commodity financialization finding strong evidence for its existence and its effect on commodity prices and volatility. We chose convenience yield (CY) to study the effect of commodity financialization based on the theory of storage and on the argument that CY resembles a call option. Using quarterly data in the period 1995–2018, on soybeans stocks, cash and futures
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Hedging securities and Silicon Valley Bank idiosyncrasies Journal of Futures Markets (IF 2.35) Pub Date : 2024-01-31 Raymond Kim
Hedging requires adequacy and timing. This paper finds that banks did not systematically ignore balance-sheet risks like Silicon Valley Bank (SVB), and instead exercised risk management by asymmetrically increasing hedging activity when security losses increase and scaling back hedging activity as security losses reverse. Banks also hedge against bank runs when risk increases due to a combination of
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Short-term market impact of Black Sea Grain Initiative on four grain markets Journal of Futures Markets (IF 2.35) Pub Date : 2024-01-18 António Miguel Martins
This paper examines the short-term market reaction of four agricultural commodities to the Russian–Ukraine war and various stages of the Black Sea Grain Initiative Agreement. Using an event study, the results show a positive abnormal return for the agricultural grain markets with the outbreak of the war and the nonrenewal of the Black Sea Grain Agreement. These two events by causing supply-side constraints
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Price discovery and long-memory property: Simulation and empirical evidence from the bitcoin market Journal of Futures Markets (IF 2.35) Pub Date : 2024-01-15 Ke Xu, Yu-Lun Chen, Bo Liu, Jian Chen
Price discovery studies of a single asset traded in multiple markets have traditionally focused on assessing the relative price discovery contribution of each market. However, in this paper, we demonstrate that the overall price discovery across all markets can undergo changes even when the relative price discovery of each market remains constant. We propose that this overall change in price discovery
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The predictability of carbon futures volatility: New evidence from the spillovers of fossil energy futures returns Journal of Futures Markets (IF 2.35) Pub Date : 2024-01-07 Zhikai Zhang, Yaojie Zhang, Yudong Wang, Qunwei Wang
In this paper, we find new evidence for the carbon futures volatility prediction by using the spillovers of fossil energy futures returns as a powerful predictor. The in-sample results show that the spillovers have a significantly positive effect on carbon futures volatility. From the out-of-sample analysis with various loss functions, we find that fossil energy return spillovers significantly outperform
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Left-digit biases: Individual and institutional investors Journal of Futures Markets (IF 2.35) Pub Date : 2023-12-26 Jinyoung Yu, Young-Chul Kim, Doojin Ryu
This study examines the left-digit bias of individual and institutional investors using the microstructural data set from a highly liquid index futures market. Both investor groups exhibit excess buying after the ask falls with a tens-digit decrement, whereas excess selling (buying) is observed only for institutions (individuals) after the bid rises with a tens-digit increment. Such excess buying is
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Role of derivatives market in attenuating underreaction to left-tail risk Journal of Futures Markets (IF 2.35) Pub Date : 2023-12-25 Sumit Saurav, Sobhesh Kumar Agarwalla, Jayanth R. Varma
The anomalous negative relationship between left-tail risk measures and future returns has recently attracted the attention of finance researchers. We examine the role of the derivatives market in attenuating left-tail risk anomaly in India, where derivatives trade only for a subset of stocks. We find that the negative association between left-tail risk measure and future return is absent only in stocks
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Assessing the asymmetric volatility linkages of energy and agricultural commodity futures during low and high volatility regimes Journal of Futures Markets (IF 2.35) Pub Date : 2023-12-25 Anthony N. Rezitis, Panagiotis Andrikopoulos, Theodoros Daglis
This study investigated the volatility linkages between energy and agricultural futures, including possible causes for these comovements, such as external macroeconomic and financial shocks during low and high volatility regimes. A combination of Markov-switching regressions and quadrivariate VAR–DCC–GARCH and VAR–BEKK–GARCH modeling revealed that external shocks have an asymmetric effect on the relationship
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The information content of wheat derivatives regarding the Ukrainian war Journal of Futures Markets (IF 2.35) Pub Date : 2023-11-23 Nicole Branger, Michael Hanke, Alex Weissensteiner
We extract implied price densities from wheat options and futures prices during the first 17 months of the Ukrainian war. Changing differences between short- and long-term densities indicate that market expectations about the dynamics of the underlying changed over time. Before the signing of the Black Sea Grain Initiative, wheat derivatives prices showed predictive power for the further development
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Derivative disclosures and managerial opportunism Journal of Futures Markets (IF 2.35) Pub Date : 2023-11-17 Guanming He, Helen Mengbing Ren
Derivatives are increasingly used by managers not only to hedge risks but also to pursue nonhedging activities for fulfilling opportunistic incentives. The Statement of Financial Accounting Standards No. 161 (SFAS 161) requires firms to disclose their objectives and strategies for using derivatives. Using the adoption of this standard, we examine whether and how derivative disclosures influence managerial
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Performance comparison of alternative stochastic volatility models and its determinants in energy futures: COVID-19 and Russia–Ukraine conflict features Journal of Futures Markets (IF 2.35) Pub Date : 2023-11-14 Mário Correia Fernandes, José Carlos Dias, João Pedro Vidal Nunes
This paper studies the volatility dynamics of futures contracts on crude oil, natural gas, and gasoline. An appropriate Bayesian model comparison exercise between seven stochastic volatility (SV) models is estimated using daily prices for our futures contracts between 2005 and 2023. Moreover, to assess the impacts of COVID-19 and the Russia–Ukraine conflict on volatility, we analyze these two subsamples
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Hedging pressure and oil volatility: Insurance versus liquidity demands Journal of Futures Markets (IF 2.35) Pub Date : 2023-11-06 Christina Sklibosios Nikitopoulos, Alice Carole Thomas, Jianxin Wang
This study evaluates the dual role of hedging pressure (HP) in oil futures markets and analyses its effects on weekly oil volatility. We find that HP driven by hedgers' insurance demands is negatively related to volatility, while HP driven by speculators' short-term liquidity demands is positively related to volatility. Oil volatility tends to be more responsive to speculators' short-term liquidity
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Predictability of commodity futures returns with machine learning models Journal of Futures Markets (IF 2.35) Pub Date : 2023-11-08 Shirui Wang, Tianyang Zhang
We use prevailing machine learning models to investigate the predictability of futures returns in 22 commodities with commodity-specific and macroeconomic factors as predictors. Out-of-sample prediction errors for the majority of futures contracts are lowered compared with those obtained by the baseline models of AR(1) and forecast combinations. Using Shapley values to explain feature importance, we
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Uncertainty and investment: Evidence from domestic oil rigs Journal of Futures Markets (IF 2.35) Pub Date : 2023-11-08 Asad Dossani, John Elder
We provide new evidence on the response of investment to uncertainty, using granular and high-frequency (weekly) data on domestic oil drilling and oil prices since 2012, corresponding to the period of widespread horizontal drilling and hydraulic fracturing in the United States. Weekly data permits much weaker identifying restrictions than is required with monthly data that is common in the literature
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Revisiting the puzzle of jumps in volatility forecasting: The new insights of high-frequency jump intensity Journal of Futures Markets (IF 2.35) Pub Date : 2023-11-06 Hui Qu, Tianyang Wang, Peng Shangguan, Mengying He
Motivated by the puzzling null impact of high-frequency-based jumps on future volatility, this paper exploits the rich information content in high-frequency jump intensity with a mark structure under the heterogeneous autoregressive framework. Our proposed model shows that harnessing jump intensity information from the marked Hawkes process leads to significantly superior in-sample fit and out-of-sample
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Air pollution, weather factors, and realized volatility forecasts of agricultural commodity futures Journal of Futures Markets (IF 2.35) Pub Date : 2023-10-17 Jiawen Luo, Qun Zhang
This study investigates the potential effects of environmental factors on fluctuations in agricultural commodity futures markets, by constructing a new category of daily exogenous predictors related to air pollution, weather, climate change, and investor attention. The empirical results from out-of-sample analyses suggest that the heterogeneous autoregressive (HAR) model incorporating all these exogenous
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Leveraging prices from credit and equity option markets for portfolio risk management Journal of Futures Markets (IF 2.35) Pub Date : 2023-10-12 Jean-François Bégin, Mathieu Boudreault, Mathieu Thériault
This study presents a firm-specific methodology for extracting implied default intensities and recovery rates jointly from unit recovery claim prices—backed by out-of-the-money put options—and credit default swap premiums, therefore providing time-varying and market-consistent views of credit risk at the individual level. We apply the procedure to about 400 firms spanning different sectors of the US
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Time-varying price discovery in regular and microbitcoin futures Journal of Futures Markets (IF 2.35) Pub Date : 2023-10-10 Yu-Lun Chen, J. Jimmy Yang
We investigate the dynamic price discovery in the regular bitcoin (BTC) and microbitcoin (MBT) futures at the Chicago Mercantile Exchange. The only difference between the two bitcoin futures is the contract size, with MBT representing 1/50th of BTC. In contrast to recent findings in the literature, we find that BTC dominates MBT futures in price discovery, which can be attributed to the relative liquidity
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Calibration in the “real world” of a partially specified stochastic volatility model Journal of Futures Markets (IF 2.35) Pub Date : 2023-10-03 Lorella Fatone, Francesca Mariani, Francesco Zirilli
We study the “real world” calibration of a partially specified stochastic volatility model, where the analytic expressions of the asset price drift rate and of the stochastic variance drift are not specified. The model is calibrated matching the observed asset log returns and the priors assigned by the investor. No option price data are used in the calibration. The priors chosen for the asset price
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Market-wide overconfidence and stock returns Journal of Futures Markets (IF 2.35) Pub Date : 2023-09-27 Qiang Chen, Yu Han, Ying Huang
In this paper, a novel measurement of overconfidence over the market is developed based on the size of ambiguity (the confidence of investors in information). The proposed measure of market-wide overconfidence is consistent with the predictions motivated by prior literature. It has a significant negative association with the next-month market excess return. Associations between the overconfidence measure
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Dynamic connectedness between energy markets and the Brazilian cash market: An empirical analysis pre- and post-COVID-19 Journal of Futures Markets (IF 2.35) Pub Date : 2023-09-27 Rafael Baptista Palazzi, Ata Assaf, Marcelo Cabus Klotzle
Brazil's significant commodity production is internationally recognized, yet the absence of a mature futures market exposes it to price risks and international shocks. This study explores the dynamic connectedness between commodity futures and the Brazilian cash markets, using a time-varying parameter vector autoregressive model. We also assess COVID-19's impact on this connectedness. We find a significant
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Can technical indicators based on underlying assets help to predict implied volatility index Journal of Futures Markets (IF 2.35) Pub Date : 2023-09-27 Shi Yafeng, Yanlong Shi, Ying Tingting
Given the widespread use of technical analysis and the tight relationship between derivatives and the underlying assets, we employ the copula approach to investigate whether the technical indicators based on underlying assets convey extra information about the future movements of implied volatility (IV) indexes. The empirical results, based on long samples of five well-known IV indexes, suggest that
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Dynamic correlations and volatility spillovers between subsectoral clean-energy stocks and commodity futures markets: A hedging perspective Journal of Futures Markets (IF 2.35) Pub Date : 2023-09-11 Merve Coskun
This study investigates the time-varying connectedness between subsectoral clean-energy stocks and fossil fuel energy commodities (crude oil, natural gas, and coal) over the period of December 2013–January 2023 employing the Diebold and Yilmaz approach and the dynamic conditional correlation generalized autoregressive conditional heteroscedasticity model. According to the findings, oil transmits the
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Estimation of rare disaster concerns from option prices—An arbitrage-free RND-based smile construction approach Journal of Futures Markets (IF 2.35) Pub Date : 2023-08-21 Pascal Albert, Michael Herold, Matthias Muck
This research addresses the estimation of measures of rare disaster concerns from option prices. We propose a new smile construction approach to obtain the required continuum of implied volatilities from discretely sampled observations that are affected by microstructure noise. We extrapolate implied volatilities of far out-of-the-money options by modeling the tails of the risk-neutral return distribution
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EPU spillovers and sovereign CDS spreads: A cross-country study Journal of Futures Markets (IF 2.35) Pub Date : 2023-08-19 Yuting Gong, Zhongzhi He, Wenjun Xue
This paper examines the spillover effect of global economic policy uncertainty (EPU) on sovereign credit default swap (CDS) spreads in a sample of 21 countries. We use a multivariate quantile model to measure EPU spillovers for each country and find that global EPU spillovers have a significant and positive effect on subsequent CDS spreads in both developed and emerging markets. The spillover effect
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Sequential Itô–Taylor expansions and characteristic functions of stochastic volatility models Journal of Futures Markets (IF 2.35) Pub Date : 2023-08-07 Kailin Ding, Zhenyu Cui, Yanchu Liu
This study proposes a new approach to derive the characteristic function of a general stochastic volatility model by sequentially utilizing the Itô–Taylor expansions. In particular, our method applies to non-affine stochastic volatility models with jumps, for which the corresponding characteristic functions do not have closed-form expressions. Numerically inverting these characteristic functions can
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Transfer-entropy-based dynamic feature selection for evaluating Bitcoin price drivers Journal of Futures Markets (IF 2.35) Pub Date : 2023-08-03 Sasan Barak, Navid Parvini
Despite the growing literature in cryptocurrency forecasting and their price drivers, the relationship between their price and other financial time series is an ongoing matter of debate. This study proposes a three-step methodology to cover these arguments. First, we conduct an ad hoc analysis using transfer entropy (TE) to study the causal relationship between Bitcoin (BTC) returns and a vast array
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Credit default swaps and firm risk Journal of Futures Markets (IF 2.35) Pub Date : 2023-07-17 Hai Lin, Binh Hoang Nguyen, Junbo Wang, Cheng Zhang
This study investigates how initiating a credit default swap (CDS) affects firm risk. Using the firm value volatility as a measure of firm risk, we document that firm risk decreases following the commencement of CDS trading. Further analysis indicates that the empty creditor channel, which arises when a debt holder with CDS protection has no interest in preserving the company it provides funds, is
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Harvesting the volatility smile in a large emerging market: A Dynamic Nelson–Siegel approach Journal of Futures Markets (IF 2.35) Pub Date : 2023-07-14 Sudarshan Kumar, Sobhesh Kumar Agarwalla, Jayanth R. Varma, Vineet Virmani
While there is a large literature on modeling volatility smile in options markets, most such studies are eventually focused on the forecasting performance of the model parameters and not on the applicability of the models in a trading environment. Drawing on the analogy of volatility smile like a term structure in the context of interest rates in fixed-income markets, we evaluate the performance of
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Option pricing with overnight and intraday volatility Journal of Futures Markets (IF 2.35) Pub Date : 2023-07-10 Fang Liang, Lingshan Du, Zhuo Huang
Efficiently exploiting the volatility information contained in price variations is important for pricing options and other derivatives. In this study, we develop a new and flexible option-pricing model that explicitly specifies the joint dynamics of overnight and intraday returns. The application of multivariate Edgeworth–Sargan density enables us to derive analytical approximations for option valuation
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The effectiveness of crude oil futures hedging during infectious disease outbreaks in the 21st century Journal of Futures Markets (IF 2.35) Pub Date : 2023-06-30 You-How Go, Jia-Jun Teo, Kam Fong Chan
This study analyzes the hedging effectiveness of crude oil futures during infectious disease outbreaks in the 21st century. The conditional volatility of crude oil markets experienced a greater shock during the coronavirus disease 2019 (COVID-19) pandemic than during the severe acute respiratory syndrome and swine-origin influenza A outbreaks. The sharp decline in the conditional correlation of crude
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Pricing of American Parisian option as executive option based on the least-squares Monte Carlo approach Journal of Futures Markets (IF 2.35) Pub Date : 2023-06-30 Yangyang Zhuang, Pan Tang
In this study, we create a novel American double-barrier Parisian call option contract that may be utilized as an executive option for listed companies to incentivize staff and replace the classic American option. We address the option pricing problem by developing state variables to identify the price state and using the least-squares Monte Carlo approach. We present several Lévy processes to simulate
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Belief distortion near 52W high and low: Evidence from Indian equity options market Journal of Futures Markets (IF 2.35) Pub Date : 2023-06-28 Sumit Saurav, Sobhesh Kumar Agarwalla, Jayanth R. Varma
We examine investors' behavioral biases and preferences in the options market near 52-week high and low (52W-H/L) using Indian options market data. We document that as the stock price approaches 52W high (low), the skewness of risk-neutral density (RND), and out-of-the-money (OTM) call volume decreases (increases), while OTM put volume increases (decreases). After crossing the 52W high (low), the skewness
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The effect of macroeconomic news announcements on the implied volatility of commodities: The role of survey releases Journal of Futures Markets (IF 2.35) Pub Date : 2023-06-24 Adrian Fernandez-Perez, Raquel López
We examine the response of the implied volatility in crude oil, gold, and silver commodity markets to macroeconomic news announcements. We find that macroeconomic releases reduce uncertainty in commodity markets consistent with the hypothesis of uncertainty resolution following scheduled news announcements, while macroeconomic releases from the category of survey news announcements increase it. This
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Impact of crude oil volatility jumps on sustainable investments: Evidence from India Journal of Futures Markets (IF 2.35) Pub Date : 2023-06-22 Anupam Dutta, Kakali Kanjilal, Sajal Ghosh, Donghyun Park, Gazi Salah Uddin
This study examines the impact of crude oil volatility jumps on the realized volatility (RV) of green and dirty stocks in India. In doing so, we first estimate the time-varying jumps in oil market implied volatility index (OVX) and then augment the heterogeneous autoregressive (HAR) process with the information on such jumps. Our sample runs from December 2012 to April 2022, which includes 2328 data
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Climate change attention and carbon futures return prediction Journal of Futures Markets (IF 2.35) Pub Date : 2023-06-21 Xu Gong, Mengjie Li, Keqin Guan, Chuanwang Sun
This study explores the predictive effect of climate change attention on carbon futures returns. Using climate-related Google Trends and news, we construct five dimensions of the public climate attention index and media climate attention index. After feature selection, we incorporate the optimized combination with lagged order into the machine learning model to predict EU Emission Allowance futures
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Unspanned macro risks in VIX futures Journal of Futures Markets (IF 2.35) Pub Date : 2023-06-13 Xinglin Yang
This study investigates hidden factors in the volatility index (VIX) futures market. Risk factors spanned by the futures curve have a limited ability to capture variations in the expected excess returns. The market's hidden factors provide additional predictive power for future returns in addition to that provided by the factors spanned by the futures curve. The use of a dynamic term structure model
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The predictability of iron ore futures prices: A product-material lead–lag effect Journal of Futures Markets (IF 2.35) Pub Date : 2023-06-13 Mengxi He, Yudong Wang, Yaojie Zhang
This study investigates the lead–lag effects between product futures and raw material futures. Results show that returns on product futures lead returns on raw material futures: lagged product futures returns can significantly predict raw material futures returns in- and out-of-sample. This product-material lead–lag effect is mainly driven by bad news and is a short-term phenomenon. Moreover, returns
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VIX futures pricing based on high-frequency VIX: A hybrid approach combining SVR with parametric models Journal of Futures Markets (IF 2.35) Pub Date : 2023-06-05 Gaoxiu Qiao, Gongyue Jiang
We propose a novel hybrid approach for volatility index (VIX) futures pricing by combining support vector regression (SVR) with parametric models. Realized semivariances calculated based on high-frequency VIX are used to characterize the asymmetric shocks of VIX, and the direct pricing framework of the heterogeneous autoregressive model is extended by incorporating realized semivariances. VIX futures
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An empirical investigation on risk factors in cryptocurrency futures Journal of Futures Markets (IF 2.35) Pub Date : 2023-05-22 Yeguang Chi, Wenyan Hao, Jiangdong Hu, Zhenkai Ran
We investigate the cross-section asset-pricing patterns of major cryptocurrencies from 2017 to 2021. We show that the basis, momentum, and basis–momentum factors earn statistically significant excess returns, a result consistent with the findings reported in the commodity futures literature. The basis is the strongest signal predicting cross-sectional differences in cryptocurrency futures returns;
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Carbon assets and Bitcoin: Hedging roles in global stock markets during the tranquil and turbulent periods? Journal of Futures Markets (IF 2.35) Pub Date : 2023-05-17 Wei Jiang, Yanyu Zhang
This paper studies time-frequency connectedness among carbon assets, Bitcoin, and global stock markets by using the Diebold and Yilmaz method and the Baruník and Křehlík method, to investigate the hedging ability of carbon assets and Bitcoin in global stock markets. Our study finds that both carbon assets and Bitcoin play hedging roles in global stock markets. However, their strength of hedging is
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Commodity momentum and reversal: Do they exist, and if so, why? Journal of Futures Markets (IF 2.35) Pub Date : 2023-05-16 Meng Han
Questions as to why differences in momentum and reversal patterns seem to emerge in commodity futures compared with spot markets, and how these patterns can be explained, remain unanswered. To investigate these questions, I examine 23 commodities over a period of 60 years. I first show that including the net convenience yield in the definition of commodity spot returns reconciles the differences in
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Hedging options in a hidden Markov-switching local-volatility model via stochastic flows and a Monte-Carlo method Journal of Futures Markets (IF 2.35) Pub Date : 2023-05-12 Robert J. Elliott, Tak Kuen Siu
The hedging of European contingent claims in a continuous-time hidden Markov-regime-switching diffusion model is discussed using stochastic flows of diffeomorphisms and Monte-Carlo simulations. Specifically, the price dynamics of an underlying risky asset are governed by a continuous-time hidden Markov-modulated local-volatility model. Filtering theory is used to estimate the unobservable drift given
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Term spreads of implied volatility smirk and variance risk premium Journal of Futures Markets (IF 2.35) Pub Date : 2023-05-08 Wei Guo, Xinfeng Ruan, Sebastian A. Gehricke, Jin E. Zhang
In this paper, we study the pattern of S&P 500 index options implied volatility (IV) curves and their predictive ability for the variance risk premium (VRP). We explore this predictability employing by the Zhang and Xiang IV factor estimation. We show that the level factor term spread significantly predicts the VRP, proxied by straddle returns and variance swap returns, in both in-sample and out-of-sample
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Analytically pricing European options under a hybrid stochastic volatility and interest rate model with a general correlation structure Journal of Futures Markets (IF 2.35) Pub Date : 2023-05-04 Xin-Jiang He, Sha Lin
In this paper, an additional factor is introduced into the Heston–Hull–White (HHW) hybrid model, which originally combines the Heston stochastic volatility model and the Hull–White stochastic interest rate model, to capture the correlation between the underlying price and the interest rate, while at the same time preserve the analytical tractability. With the analytical solution to the characteristic
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Commodity network and predictable returns Journal of Futures Markets (IF 2.35) Pub Date : 2023-05-02 Qi Xu, Yang Ye
We investigate the lead–lag relation in the cross-section of commodity returns. We estimate dynamic and directional networks for 32 commodities and then construct a new predictor termed commodity network momentum, exploring cross-commodity information spillover. Network momentum positively and significantly predicts future commodity returns, controlling for existing commodity characteristics. Unlike
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Global climate change and commodity markets: A hedging perspective Journal of Futures Markets (IF 2.35) Pub Date : 2023-04-13 Shanghui Jia, Xinhui Chen, Liyan Han, Jiayu Jin
This paper aims to measure the tail-risk dependence between climate change and commodity futures markets. We utilize Morgan Stanley Capital International Climate Change Index (CCI) to serve as a proxy indicator of the stock market climate change for examining the tail-risk spillover effect among 16 major commodity futures. Using GARCH–Copula–CoVaR framework, we show that extreme climate change has
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Who pays the liquidity cost? Central bank announcements and adverse selection Journal of Futures Markets (IF 2.35) Pub Date : 2023-04-13 Doojin Ryu, Robert I. Webb, Jinyoung Yu
This study examines whether the composition of market participants contributes to shaping market liquidity around central bank announcements. By analyzing transaction-level data from a stock index futures market, we find that the roles of foreign and domestic institutional investors in taking or providing liquidity, respectively, are switched following the news announcements. The participation of domestic