Financial Engineering Seminar
April 22, 2005 (Fri)
3:00 PM - 3:50 PM (8th period),
Weil Hall 307
VOLUME AND VOLATILITY IN FUTURES AND OPTIONS MARKETS
Abstract:
This presentation examines the relationships and characteristics of volume and volatility in futures
and options. A key emphasis is the investigation of four types of traders (CTI volume) and their
relationship to volatility. CTI trader volume is important both to practitioners (traders have made
fortunes by determining who is buying and selling) and to academics (“who causes volatility”).
Daigler and Wiley (JF, 1999) determined that the general public (CTI4) is associated with higher
volatility, while institutional traders (CTI2) often reduce volatility. Also, unexpected volume is more
important than expected volume in terms of its effect on volatility. We also examine the response
of CTI volume to a shock in volatility and vice-versa. Other topics we examine are the distribution
of volume (by type of trader),whether the dealers on the floor are market makers of speculators,
which of the CTI groups are associated with the implied volatility skew, and if options are
purchased (sold) at too high (too low) a price and by whom. Finally, we examine the risk-return
benefits of a combination of the VIX and the S&P 500 and the persistence of various measures of
volatility.
Downloads:
Presentation.pdf
Abstract.pdf