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

Author

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  • Jacobs, Kris
  • Mai, Anh Thu

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.

Suggested Citation

  • Jacobs, Kris & Mai, Anh Thu, 2024. "The role of intermediaries in derivatives markets: Evidence from VIX options," Journal of Empirical Finance, Elsevier, vol. 77(C).
    • Handle: RePEc:eee:empfin:v:77:y:2024:i:c:s0927539824000276
    DOI: 10.1016/j.jempfin.2024.101492
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    More about this item

    Keywords

    Intermediaries; Net demand pressure; VIX; Market makers; Option prices; Vector autoregression;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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