Effects of Option Introduction on Price and Volatility of Underlying Assets - A Review

GITAM Review of International Business, Vol. 1, No. 2, pp. 100-121, January 2009

21 Pages Posted: 9 Mar 2011

See all articles by Gourishankar S. Hiremath

Gourishankar S. Hiremath

Indian Institute of Technology (IIT), Kharagpur - Department of Humanities and Social Sciences

Date Written: January 2009

Abstract

The effect of options’ introduction on underlying market is one of the frequently debated themes in financial research. A significant body of literature addresses the question of effects of options’ introduction. The critical review of the literature shows that there is no consensus among scholars regarding the impact. Theoretically, it has been argued that the option market stabilizes the underlying market. Though the empirical evidences of stabilization effect have not lead to a consensus, but there is little evidence for the destabilization effect of options. Given increasing growth of options in financial market especially in emerging markets, the future studies from these markets may shed new light on the debate.

Keywords: Derivatives, Options, Price impact, volatility, destabalization, market efficiency, effects of derivatives

JEL Classification: G15, C49

Suggested Citation

Hiremath, Gourishankar S., Effects of Option Introduction on Price and Volatility of Underlying Assets - A Review (January 2009). GITAM Review of International Business, Vol. 1, No. 2, pp. 100-121, January 2009, Available at SSRN: https://ssrn.com/abstract=1776938

Gourishankar S. Hiremath (Contact Author)

Indian Institute of Technology (IIT), Kharagpur - Department of Humanities and Social Sciences ( email )

Kharagpur, West Bengal 721302
India

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