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Author: Leo H. Chan Publisher: ISBN: Category : Languages : en Pages :
Book Description
The Chicago Mercantile Exchange (CME) abandoned the live hog futures contract (physical delivery) in December 1996 and replaced it with the lean hog futures contract (cash settlement), with the intention of improving the effectiveness of the contract as a risk management tool. This paper applies implied volatility derived from options on live/lean hog futures contracts to examine the possible effects of cash settlement on futures price volatility. Using different data windows and applying different model specifications, it is found that the hog futures price has become less volatile, thus improving the risk management function of the futures contract, since the adoption of cash settlement.
Author: Leo H. Chan Publisher: ISBN: Category : Languages : en Pages :
Book Description
The Chicago Mercantile Exchange (CME) abandoned the live hog futures contract (physical delivery) in December 1996 and replaced it with the lean hog futures contract (cash settlement), with the intention of improving the effectiveness of the contract as a risk management tool. This paper applies implied volatility derived from options on live/lean hog futures contracts to examine the possible effects of cash settlement on futures price volatility. Using different data windows and applying different model specifications, it is found that the hog futures price has become less volatile, thus improving the risk management function of the futures contract, since the adoption of cash settlement.
Author: Leo H. Chan Publisher: ISBN: Category : Languages : en Pages : 21
Book Description
Prior to 1986, any opening position on feeder cattle futures contract must be settled with physical delivery after the last trading day. Due to dwindling commercial interests, Chicago Mercantile Exchange (CME) subsequently replaced the system with the cash settlement method. It was argued that cash settlement would help reduces the futures price's volatility. In this paper, we adopted stochastic volatility models to investigate this conjecture. The models allow for time varying volatility. Using 4 estimators based on mixtures of high, low, open and close prices, we found all estimators conclude that the volatility of the feeder cattle futures price decreased after switching from physical delivery to cash settlement. The change in the contract specification therefore enhances price discovery and risk management functions of the futures market. Concerning the higher moments of the volatility, different conclusions were derived. Range data, the Parkinson and the Rogers-Satchell estimators all indicate that cash settlement led to a reduction in the volatility of volatility.
Author: Leo H. Chan Publisher: ISBN: Category : Languages : en Pages : 25
Book Description
Prior to 1986, any opening position on feeder cattle futures contract must be settled with physical delivery after the last trading day. Due to dwindling commercial interests, Chicago Mercantile Exchange (CME) subsequently replaced the system with the cash settlement method. It was argued that cash settlement would help improve the convergence between cash and futures prices and reduce the basis variability. In this paper, we adopted stochastic volatility models to investigate this conjecture. The models allow for time varying volatility. We found strong evidence of reduction in basis and in basis variance after cash settlement. Moreover, cash settlement induced a change in the structural relationship between cash and futures prices. The futures market has become more efficient after the change in settlement methods.
Author: Donald D. Lien Publisher: ISBN: Category : Languages : en Pages :
Book Description
This study examines whether the expiration-day effects of stock options traded in Australian Stock Exchange on return, volatility, trading volume, and temporary price changes of individual stocks vary with the availability and the settlement method of individual stock futures contracts. Using transaction data of the stocks that have both options and futures contacts from 1993 to 1997, we find that options expiration has significant effects on return and volatility of the underlying stocks in absence of individual stock futures. After introduction of a cash-settled stock futures contract, the effects decrease notably. However, the switch of a futures contract from cash settlement to physical delivery promotes the expiration effects on return and volatility and boosts temporary price changes on expiration days. Finally, options expiration has little effect on trading volume. Trading activity tends to behave normally regardless whether stock futures contracts are available or not.
Author: Tae H. Park Publisher: ISBN: Category : Languages : en Pages : 14
Book Description
Four times a year, Eurodollar futures contracts are settled by cash to a final settlement price that is tied to spot three-month LIBOR. The LIBOR used in the settlement is determined by the Chicago Mercantile Exchange after conducting two surveys of major banks on the last hour of settlement. This paper tests for abnormal changes in the volatility of Eurodollar futures prices during the time of survey on expiration days. In contrast to the recent studies on the effects of the release of public information on derivative markers, this study focuses on the release of private information. We specifically test whether private information contained in the settlement survey of the participating banks influences market activity. Volatility series are examined for expiring and nearby contracts using the price changes in fifteen minute intervals for the period June 1982 to June 1992. Once the effects of government announcements are controlled for, our results indicate that, for the expiring contracts, volatility is reduced during the time of survey. perhaps due to reduced open interest and activity near the expiration hour. However, the price volatility of the nearest contracts increases during the rime of the survey on expiration days. This effect is more pronounced at the beginning of the survey rime, between 8:00 and 8:15 Chicago time. This result sheds new light on the importance of the release of private information on derivatives markers.
Author: Leo H. Chan
Author: Leo H. Chan
Author: Leo H. Chan
Author: Leo H. Chan
Author: 
Author: Donald D. Lien
Author: Tae H. Park
Author: Gary Robinson
Author: 
Author: Stuart K. McLean
Author: Jau-Lian Jeng