Derivatives Market Research Articles

Hedging with Financial Derivatives and Firm Performance of Consumer Goods Companies Listed on Nigeria Exchange Group

Hedging with derivatives is a common strategy to manage foreign currency risk, interest rate risk, commodity price risk and mitigating potential losses or gains that might arise from fluctuations in the market. This study was conducted to reveal findings on the impact of hedging activities using derivatives on the financial performance of consumer goods companies listed on Nigerian Exchange (NGX). The independent variables for the study are foreign currency hedge, interest rate hedge and commodity price hedge. Data were collected from Ten (20) consumer goods companies quoted on Nigerian Exchange covering 2018 to 2022 financial years. The results of hypothesis testing reveal that hedging with derivatives has a significant effect on firm performance. This findings supports the findings of Alan and Gupta (2018) and Lenee and Oki (2017), who conclude that the use of hedging can minimize the volatility and has a positive effect on firm value. As a general recommendations, it is important to note that regulating the derivatives market is essential to ensure stability, transparency, prevent excessive speculation, manipulation, and enhance fair practices in the financial system.

Case Analysis and Future Expectations of Chinese Enterprises Suffering Heavy Losses in the International Futures Market: Take the Bank of China and Tsingshan LME as Examples

Affected by various factors such as COVID-19 epidemic and war, the world economic situation changes more frequently, which leads to increased instability in the international and domestic financial derivatives market. For the substantial changes in the international and domestic financial derivatives market, how to deal with sudden changes and analyze the failure cases in the change of financial derivatives is of far-reaching significance to the rapidly developing domestic financial derivatives market. By taking the Bank of China “crude oil treasure’ margin call liquidation case and Tsingshan LME Nickel Futures Squeeze Case as the core of the study, this paper uses case analysis method to deeply study the possible problems and failures in the futures market under the condition of financial derivatives market instability and puts forward suggestions on how to deal with these problems. This paper analyzes the attributes and characteristics of China’s ‘crude oil treasure’ products and nickel futures products, restores the event process, describes the impact of the event on investors, trading institutions and banks, and puts forward suggestions for improvement. The suggestions in this paper are as follows: First, the company and the regulatory department should strengthen risk supervision and management; Second, companies and investors should improve their professional capabilities.

Analysis of the clearing mechanism of capital markets of USA, the regulations in the derivative segment, major hiccups in the last 10 years and a comparison of sectoral performance and expected performance in the near future

A crucial component of any financial market is the clearing system. It is the method used to match and settle deals, assuring the protection of all parties engaged in a transaction. The Securities and Exchange Commission (SEC) in the United States regulates the clearing system for the stock market, while the Commodity Futures Trading Commission (CFTC) regulates the clearing system for the commodity market. In response to changes in the market and hazards, the laws governing the derivatives sector have changed throughout time. Derivative markets have been subject to much more regulation since the 2008 financial crisis. This occurred as a result of the perception that derivatives had a significant role in the crisis. In the past ten years, there has been some fluctuation in the stock market's and commodities market's sectoral performance in the United States. The S&P 500 index has increased in value by more than double, signaling generally positive stock market performance. The commodity market, on the other hand, has been more erratic, with some commodities, like gold and oil, seeing huge price changes. In the short future, it is difficult to predict how the stock market and commodities markets will perform. While some analysts predict that the stock market will continue to do well, others think a correction is almost due. The commodities market is predicted to be unstable as well, with prices influenced by a variety of variables such as supply and demand, economic expansion, and geopolitical developments. This research paper will examine the clearing system for the US stock and commodities markets, the rules governing the derivatives market, significant setbacks during the past ten years, and a comparison of recent sector performance and anticipated performance. The ramifications of these discoveries for the future of the financial markets will also be covered in the discussion.

Corresponding Solutions to the Problems in China's Derivatives Market

With the increasing uncertainty of the interest rate, exchange rate, inflation rate, and other factors in the financial market, financial institutions need all kinds of financial instruments in order to avoid financial risks, and in this situation, financial derivatives were born. With the progress of society and economic development, the financial derivatives market continues to expand in China. However, opportunities always coexist with crises, and there are still some problems in China's derivatives market. This paper studies the problems existing in Chinas derivatives market and puts forward corresponding solutions. It is found that problems such as an ineffective mechanism for supervision, insufficient innovation, immature investors, single market tools, and ineffective market functions still exist in Chinas financial derivatives market. To address these issues, China should improve the legal system, enhance transaction transparency, strengthen supervision and management, enrich the types of financial derivatives, cultivate qualified institutional investors, and reduce restrictions on overseas business.

Allowance-based Carbon Options Pricing Strategy and Asset Management Research Progress

Under the issue of global warming and environmental protection, low-carbon development has become an unshakable responsibility for governments worldwide. In China, the national carbon emission trading market established in 2021, which promotes the economic development of carbon derivatives. In order to facilitate the trading system, carbon options pricing theory has become a centerpiece of academic attention. This paper reviews the study progress in detail in the area of allowance-based carbon options pricing strategy carbon internationally, and makes an analysis of the application and management in international carbon markets. The mainstream pricing models include the Black-Scholes and the Monte Carlo option pricing models. On this basis, the carbon option prices estimated using the GARCH model and fractal Brownian motion have a higher degree of fitted value. In addition, this paper analyzes the application and management of carbon options in the carbon market. The carbon option helps reduce the carbon trading risk and the spendings on emission reduction for enterprises. This research intends to give a reference for the subsequent theoretical exploration of carbon options and promote the growth of the derivatives market.

Assessing the Implementation and Performance of Automated Trading Software with Non-Biased Human Decisions in the Derivatives Market: Evidence from Thailand

Assessing the Implementation and Performance of Automated Trading Software with Non-Biased Human Decisions in the Derivatives Market: Evidence from Thailand

Price Discovery and Market Efficiency in India's Financial Futures Market within the Derivatives Landscape: An Empirical Analysis

This study offers a robust, long-term analysis of price discovery and the persisting lead-lag relationship between India’s equity futures and spot markets. Utilising monthly data from April 2005 to December 2022, it filters transient noise typically associated with high-frequency data. Information Share and Common Factor Weight methodologies within the Vector Error Correction (VEC) framework consistently reveal the dominance of futures markets in the price discovery process. The insights remain consistent across three distinct periods spanning the global financial crisis and the COVID-19 pandemic. The volatility dynamics and asymmetry effects in the Indian equity futures and spot markets using the Vector Error Correction - Exponential General Autoregressive Conditional Heteroskedastic (VEC-EGARCH) approach uncover notable asymmetry effects, signifying a strong market sensitivity to negative news. This highlights the necessity for comprehensive risk management strategies and stringent regulatory supervision, especially in light of the significant growth and systemic risks in the Indian derivatives market.

The Empirical Evaluation of the Association between Derivatives Markets and Market Factors in Zimbabwe and Botswana

The Empirical Evaluation of the Association between Derivatives Markets and Market Factors in Zimbabwe and Botswana

Analysis of Selected Risks in the Futures and Options Markets and Their Management Strategies

The 2008 global financial crisis had profound impacts on the worlds financial system. Countries around the world intensified their regulation of financial markets, especially the derivatives market. This paper explores some financial risks, non-financial risks and risk management strategies in the futures and options markets through literature analysis, aiming to help market participants manage and reduce potential losses. These risks include liquidity, credit, market, operational, model, and Herstatt risks. This paper finds that although there are many risks in the futures and options markets, investors can still pursue profits and manage these risks effectively at the same time by applying some appropriate risk management strategies, such as hedging, using appropriate models, and utilizing real-time settlement systems. These strategies are significant for improving market stability and investor protection. Additionally, this paper emphasizes the importance of providing education for market participants and global regulatory cooperation to further maintain market integrity.

Exploring New Trends in the Global Foreign Exchange Derivatives Market Based on the European and American Financial Markets

This research delves into the changes in products and participants in the foreign exchange derivatives market in Europe and America. It uncovers the new trends in the global foreign exchange derivatives market. The European and American financial markets are significant players in foreign exchange trading and financial innovation, as they affect the world through their market fluctuations and policy changes. The study reveals that the foreign exchange derivatives market is undergoing new dynamics and environmental changes. Innovative products are emerging, and the level of transaction automation is increasing. The foreign exchange derivatives market in Europe and the United States has transformed from a simple spot foreign exchange transaction to a diverse trading system that covers major global currencies. The proportion structure of trading participants is also changing over time. In conclusion, this research provides profound insights into the global foreign exchange derivatives market. It aims to provide relevant suggestions and references for market participants and regulators based on its analysis.

The Benefits and Potential Risks of Using Option Pricing for Investment in Chinas OTC Derivatives Market under the Black-Scholes Model

In this paper, based on the qualitative research and analysis of Chinas financial market, both the benefits and potential risks of using option pricing for investment in Chinas OTC derivatives market under the Black-Scholes model are obtained. In China, OTC derivatives mainly refer to the one-to-one contract trading between institutions, non-on-exchange financial derivatives, naturally, its environment is called OTC derivatives market; Black-Scholes model is a mathematical model for option pricing. Based on the assumption that stock price obeys geometric Brownian motion, it measures the relationship between option price and underlying asset price, term, interest rate, volatility and exercise price. Based on the above variables and their overall two aspects, the gains and losses of Chinas OTC derivatives market under the Black-Scholes pricing model are obtained. Some predictions and expectations are also expressed for the future of this field.

Price discovery of the Chinese crude oil options and futures markets

China's crude oil derivatives market has attracted extensive attention since its futures contracts were officially listed in 2018. This study examines the price discovery ability between Shanghai's crude oil options market and the corresponding futures market. Results show that futures lead options and the intraday distribution of options information share has a ‘w’ shape. Intraday seasonality of futures volume and the international crude oil market have significant impacts on the price discovery process. This study is the first empirical analysis of Shanghai crude oil options in terms of price discovery and presents novel insights into China's crude oil derivatives market.

Derivatives Market: A Survey

Our research paper surveys prior research on derivatives markets. We mainly review the literature investigating the impact of introducing derivatives markets on the underlying market and the overall economic development. Particularly, we summarize papers investigating the effects on the spot market liquidity, spot market volatility, and the price discovery process. We review the literature on several countries, but the survey paper appears to be concentrated on Saudi Arabia. Our paper contributes to the literature and sheds light on introducing the derivatives market in Saudi Arabia. This survey is useful to policymakers and investors as well.

Investment Behavior of Foreign Institutional Investors and Implied Volatility Dynamics: An Empirical Study on the Indian Equity Derivatives Market

The aim of this study is to examine the association between the capital flows of foreign institutional investors (FIIs) in the equity derivatives market in India and the implied volatility of options. Previous studies on FIIs and realized volatility in the equity market provide the basis for this study. Covering a period of ten years (2012–2021), this study established the importance of FII capital flows in explaining the implied volatility of options. The Granger causality test confirms the unidirectional flow of causality between FII and implied volatility (VIX) in the Indian stock market. The vector autoregression model developed in the study confirms the dynamic relationship between implied volatility and the investment behavior of foreign institutional investors (FIIs). The outcome of this study will help options traders to understand the mispricing of options because of FII’s buying pressure on implied volatility. The results will also help policymakers understand how institutional investors influence option pricing so that appropriate decisions can be made.

Dealer networks, client sophistication and pricing in OTC derivatives

Using a novel regulatory transaction-level dataset, we analyze determinants of pricing in both dealer-to-dealer (D2D) and dealer-to-client (D2C) segments of over-the-counter (OTC) currency derivatives market enabling us to provide new empirical insights into frictions driving pricing in both segments separately and interplay of these frictions jointly. The interdealer network exhibits a core-periphery structure with core dealers charging centrality premia in both D2D and D2C segments. By acting as principal and prearranging fewer trades, they provide execution immediacy besides receiving the opportunity to internalize flows. In D2C segment, sophisticated clients experience a reduction in centrality premium alluding to an interplay of client bargaining power and dealer centrality in pricing.

Options in Derivative Market: A Study on Working and Trends in Option Contracts

Indian derivative market is very vast market. Many assets,securities, products and services are offered in derivative market to the various traders and investors. In India derivative products are offered by both BSE (Bombay stock exchange) and NSE (national stock exchange). Derivatives are classified into two parts Commodity derivatives and financial derivatives. Commodity derivatives are dealt in commodities like soybean, turmeric, oats corns. Financial derivatives include securities, bonds, treasure, foreign exchange, stock index etc. All financial derivatives are performed with the help of futures; options .this paper manly concentrates option contracts. NSE and BSE are also dealt in futures and options. This paper only considers the trends and working of option contracts in BSE. Option contracts are a right to buy or sell security on or before expiry of period at a predetermined price which is called strike price. Options are not an obligation. Call option and put option are two basic positions which are used by trader to manage the risk of buying and selling of underlying asset or security. This paper shows the working and trends of options as indexed options and equity options in BSE.

Measuring the dynamic term structure of the FFA market

ABSTRACT Forward Freight Agreements (FFAs) are exchange-traded futures and the main means of risk management for shipping spot freight. The relationship between the FFA market and the shipping spot market has attracted much attention, but few studies focus on the dynamic FFA term structure and its correlation with the spot price. In this study, we establish the dynamic term structure of the FFA market by quantifying the level factor, the slope factor and the curvature factor of the FFA term structure to reveal the underlying information in the shipping derivatives market, and further scrutinize the impact of the FFA term-structure factors on the shipping spot market. The empirical results indicate that the term-structure factors have significant time-varying effects on the BDI and BPI: The effect of the term-structure factors on BDI and BPI changes with shipping market conditions and economic environment. The level factor has a positive effect, while the slope factor and the curvature factor both have negative effects, with the impacts on the BPI being about twice as large as the impacts on the BDI. The three factors all have their strongest effect in the short term and the weakest effect in the long term.

Managing a High Uncertainty Scenario through a Real Option Assessment: Evidence from a Copper Concentrate Trader

Commodity markets are highly volatile markets where uncertainty management is critical for success. Certain commodities, such as copper concentrates, experience even higher levels of volatility and uncertainty. This is fundamentally due to the absence of a reference market that allows for a transparent price discovery, along with many factors affecting the price and trade of any commodity. Traders also lack the possibility of fully hedging their exposure to copper concentrate prices as there is no derivative market directly available for the commodity. Consequently, this paper analyses the copper concentrate trading business resorting to the Real Options methodology to assess the high volatility and uncertainty which dominates in this area of commodity markets. The results obtained indicate that this method can be applied by copper concentrate traders to separate the price uncertainty from their business operative and financial planning for the future. This provides them with a reliable tool to lower the level of uncertainty affecting their long-term goals, as well as keeping the risk that they are taking under control. It also gives them higher managerial flexibility.

The Global Harmonization of Derivatives Regulation: The Role of Fintech in Facilitating Cross-Border Compliance

The burgeoning international derivatives market demands a more unified approach to regulation. Current inconsistencies across jurisdictions create significant compliance burdens for firms, hindering market efficiency and financial stability. This paper explores the potential of fintech solutions to bridge this gap. By examining the challenges of cross-border derivatives compliance, we analyze how innovative technologies can streamline reporting, automate risk management, and enhance data standardization. The paper argues that fintech can be a powerful tool for facilitating global regulatory harmonization, promoting transparency and mitigating systemic risk in the derivatives market.

The Financial Derivatives Market and the Pandemic: BioNTech and Moderna Volatility

Global society’s comfort and well-established certainties have been unpredictably and foundationally undermined by the emergence of the COVID-19 virus. The announcement of the pandemic by the WHO has halted global economic activities, and the financial markets have recorded drastic losses. In this context of uncertainty and economic downturn, many traditional companies have been negatively impacted, but the biotechnology sector, which has already been growing for some years, registered high growth rates and earnings. In particular, this study focused on the two most significant biotech companies, BioNTech and Moderna, the two start-ups that first commercialized COVID-19 vaccines. The GARCH (1,1) model examines the relation of two stock prices and the volatility of derivatives markets before and after the outbreak of the pandemic. The variables used in the analysis are the U.S. technologic market index, the market volatility, and Brent future prices. The results suggest a different reaction of market volatility and Brent future prices on the return of both companies. Additionally, during the COVID-19 period, a contagion effect between both companies and the technological market was observed.