Study on the Influence of Cotton Option Launch on The Price Fluctuation of Underlying Futures

Abstract

This paper takes cotton options as the research object, and empirically tests the impact of cotton options on the price fluctuation of the underlying futures in the short and medium term by establishing the ARMA-GARCH model with the introduction of two dummy variables. The study found that the launch of cotton options increased the volatility of the underlying futures price in the short term, and increased the volatility in the medium and long term. After the launch of cotton options, the supply of national policies against the epidemic played a certain stabilizing role in the volatility of futures prices, but the policy effect has a time lag. Based on this, institutional investors should be encouraged to use cotton options and futures risk management, build a risk prevention and control mechanism for sudden public crisis events, popularize the knowledge of options and futures, and improve the transparency of cotton trading.