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

See all articles by Marc Chesney

Marc Chesney

University of Zurich - Department of Banking and Finance

William Eid Jr.

Getulio Vargas Foundation (FGV)

Date Written: July 17, 2009

Abstract

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

Chesney, Marc and Eid Jr., William, Options Listing and the Volatility of the Underlying Asset: A Study on the Derivative Market Function (July 17, 2009). Available at SSRN: https://ssrn.com/abstract=1435298 or http://dx.doi.org/10.2139/ssrn.1435298

Marc Chesney

University of Zurich - Department of Banking and Finance ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

HOME PAGE: http://https://www.bf.uzh.ch/en/persons/chesney-marc

William Eid Jr. (Contact Author)

Getulio Vargas Foundation (FGV) ( email )

Rua Itapeva 474 9 andar
Rio de Janeiro, 01332-000
Brazil

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