Hedging Efficiency of Gold Option Contracts in India

Abstract

The main purpose of introducing gold option futures is because option futures on gold will be fundamentally used for hedging the risks associated with gold price changes. But there is a common question whether that gold option contracts are effective in hedging price. This paper will be the answer to that question. The paper aims to find the hedging efficiency of gold option contracts in Multi Commodity Exchange (MCX). The paper uses various tests like Augmented dickey fuller test (ADF) and Simple linear regressions (OLS model). The result of this paper shows the attractiveness of the gold derivative markets as a platform for hedging price risks. The paper also see that there should be adequate awareness needed for the major stakeholders in realising the major benefits of option contracts, there by using the exchange traded platforms and derivative instruments to its full potential.