The role of intermediaries in derivatives markets: Evidence from VIX options

Kris Jacobs and Anh Thu Mai

Journal of Empirical Finance, 2024, vol. 77, issue C

Abstract: Consistent with models of intermediaries who absorb demand pressure from end-users and respond by changing prices, net option demand is positively related to option prices in the market for VIX puts and calls. VIX and SPX option markets are integrated: market-makers absorb end-users’ net long volatility positions and net demand affects prices across markets. Net demand changes in the most liquid markets result in spillover effects between the VIX and SPX markets. A dynamic characterization of prices and net demand suggests that VIX option markets and the SPX put market are integrated, while the SPX call market is more segregated.

Keywords: Intermediaries; Net demand pressure; VIX; Market makers; Option prices; Vector autoregression (search for similar items in EconPapers)
JEL-codes: G12 G13 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:77:y:2024:i:c:s0927539824000276

DOI: 10.1016/j.jempfin.2024.101492

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