Implied Volatility Patterns Around Crop Reports

Matthew Diersen and Zhiguang Wang

No 379021, 2023 Conference, April 24-25, 2023, St. Louis, Missouri from NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management

Abstract: CME Group lists weekly and short-dated new crop options for corn, wheat, and soybeans to complement standard and serial options. Weekly and short-dated new crop options on futures provide market participants with a way to trade more precisely around events such as USDA crop reports. While the finance literature has identified that short-dated options can provide exposure to both volatility and jump risks, these phenomena have not been identified in agricultural commodities. The intra-day release of reports is suspected of masking volatility patterns. Regular and short-dated options are examined to determine whether nearby and newcrop futures respond similarly to fundamental information in major crop reports. Both nearby and new-crop futures have higher price variability on report dates. In general, the implied volatility of short-dated options is reduced following the release of fundamental reports. There is evidence of concavity in the implied volatility distribution during the release date prior to release of reports, suggesting that jumps are expected before some reports.CME Group lists weekly and short-dated new crop options for corn, wheat, and soybeans to complement standard and serial options. Weekly and short-dated new crop options on futures provide market participants with a way to trade more precisely around events such as USDA crop reports. While the finance literature has identified that short-dated options can provide exposure to both volatility and jump risks, these phenomena have not been identified in agricultural commodities. The intra-day release of reports is suspected of masking volatility patterns. Regular and short-dated options are examined to determine whether nearby and newcrop futures respond similarly to fundamental information in major crop reports. Both nearby and new-crop futures have higher price variability on report dates. In general, the implied volatility of short-dated options is reduced following the release of fundamental reports. There is evidence of concavity in the implied volatility distribution during the release date prior to release of reports, suggesting that jumps are expected before some reports.

Keywords: Agricultural and Food Policy; Demand and Price Analysis (search for similar items in EconPapers)
Pages: 16
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:ags:nccc23:379021

DOI: 10.22004/ag.econ.379021

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