The Transmission of Monetary Policy to the Cost of Hedging

Matthias Fengler, Winfried Koeniger and Stephan Minger ()

No 2501, Economics Working Paper Series from University of St. Gallen, School of Economics and Political Science

Abstract: We analyze the transmission of monetary policy to the costs of hedging using options order book data. Monetary policy transmits to hedging costs both by changing the relevant state variables, such as the value of the underlying, its volatility and tail risk, and by affecting option market liquidity, including the bid-ask spread and market depth. Our estimates suggest that during the peak of the pandemic crisis in March 2020, monetary policy decisions resulted in substantial changes in hedging costs even within short intraday time windows around the decisions, amounting approximately to the annual expenses of a typical equity mutual fund.

Keywords: Liquidity; Monetary policy; Option order books; Option markets; COVID-19 pandemic (search for similar items in EconPapers)
JEL-codes: D52 E52 G13 G14 (search for similar items in EconPapers)
Pages: 96 pages
Date: 2025-01
New Economics Papers: this item is included in nep-cba, nep-mon and nep-rmg
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http://ux-tauri.unisg.ch/RePEc/usg/econwp/EWP-2501.pdf (application/pdf)

Related works:
Working Paper: The Transmission of Monetary Policy to the Cost of Hedging (2025)
Working Paper: The Transmission of Monetary Policy to the Cost of Hedging (2024)
Working Paper: The transmission of monetary policy to the cost of hedging (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:usg:econwp:2025:01

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