Migration of Price Discovery With Constrained Futures Markets

Anthony Hall, Paul Kofman and Steve Manaster
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Paul Kofman: Department of Finance, University of Melbourne

No 70, Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney

Abstract: This paper investigates the information content of futures option prices when the futures price is regulated while the futures option price itself is not. The New York Board of Trade provides the empirical setting for this type of dichotomy in regulation. Most commodity derivatives markets regulate prices of all derivatives on a particular commodity simultaneously. NYBOT has taken an almost unique position by imposing daily price limits on their futures contracts while leaving the options prices on these futures contracts unconstrained. The study takes a particular interest in the volatility and futures prices of the options-implied risk neutral density when the underlying futures contract is locked limit.

Keywords: option implied density; price limits (search for similar items in EconPapers)
JEL-codes: G13 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2001-12-01
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Citations: View citations in EconPapers (2)

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