The Role of Intermediaries in Derivatives Markets: Evidence from VIX Options

57 Pages Posted: 17 Jul 2020

See all articles by Kris Jacobs

Kris Jacobs

University of Houston - C.T. Bauer College of Business

Anh Thu Mai

University of Houston - C.T. Bauer College of Business

Date Written: June 24, 2020

Abstract

Consistent with models in which intermediaries absorb net demand pressure from end-users and respond by changing prices, net option demand is positively related to option prices in the market for VIX puts and VIX calls. These findings are consistent with existing results for S&P 500 index (SPX) options (Bollen and Whaley (2004)). They are very robust to variations in the empirical implementation. A joint analysis of net demand pressure in VIX and SPX option markets suggests that the VIX option markets are highly integrated with the SPX put market, but much less so with the market for SPX calls. The impact of net demand shocks on future prices is limited, but shocks to prices significantly affect future net demand.

Keywords: Intermediaries, Net Demand Pressure, VIX, Market Maker, Option Prices

JEL Classification: G12, G13, G20

Suggested Citation

Jacobs, Kris and Mai, Anh Thu, The Role of Intermediaries in Derivatives Markets: Evidence from VIX Options (June 24, 2020). Available at SSRN: https://ssrn.com/abstract=3635087 or http://dx.doi.org/10.2139/ssrn.3635087

Kris Jacobs

University of Houston - C.T. Bauer College of Business ( email )

Houston, TX 77204-6021
United States

Anh Thu Mai (Contact Author)

University of Houston - C.T. Bauer College of Business ( email )

Houston, TX 77204-6021
United States

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