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Volatility discovery and volatility quoting on markets for options and warrants
Author(s) -
Baule Rainer,
Frijns Bart,
Tieves Milena E.
Publication year - 2018
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.21900
Subject(s) - volatility (finance) , warrant , economics , price discovery , volatility smile , implied volatility , financial economics , issuer , volatility swap , monetary economics , finance , futures contract
In several countries, classical options markets coexist with markets for bank‐issued options (warrants) that are sold to retail investors. An interesting question in such cases is whether these bank‐issued options merely reflect the options market information about future volatility or whether they themselves contribute to volatility discovery. We find that the options market is the informational leader in terms of volatility discovery, but the aggregate warrants market also makes significant contributions to volatility discovery. Looking at the intra‐day volatility quoting behavior, warrant issuers tend to increase their quotes relative to the options markets.