Options Listing and the Volatility of the Underlying Asset: A Study on the Derivative Market Function
11 Pages Posted: 18 Jul 2009 Last revised: 27 Jul 2009
Date Written: July 17, 2009
There is a lot of misunderstanding about derivative markets. Many people believes that they are a kind of casinos and have no utility to the investors. This work looks on the effects of options introduction in the Brazilian market, seeking for another benefit for this introduction: changes in the stocks risk level due to this introduction. Our results are the same found in the US and other markets: the options introduction reduces the stocks volatility. We also found that there is a slight indication that the volatility became more stochastic with this introduction.
Keywords: Option introduction, volatility, volatility of volatility, GARCH
JEL Classification: G00
Suggested Citation: Suggested Citation