Derivatives Growth Confirming Financial Sustainability: Anecdotes from Derivatives in CBOE & NSE

Namita Rajput; Shoeba; Sufiya

Namita Rajput Principal Sri Aurobindo College (Eve.), University of Delhi https://orcid.org/0000-0001-7978-0959
Shoeba Assistant Professor, Department of Commerce, Zakir Husain Delhi College, University of Delhi https://orcid.org/0000-0002-2557-3580
Sufiya Assistant Professor, Department of Commerce, Zakir Husain Delhi College, University of Delhi https://orcid.org/0000-0002-9327-7740

Keywords: Implied Volatility, Volatility smile, smile asymmetry, causality

Abstract

Purpose: A country’s growth can better be measured in terms of financial indicators; derivatives is one of them. It is one of the evolving instruments to hedge risk and offer information about market and thereby economy. With this background, the objective of the paper is to study and compare the Indian options with European options.
Research Methodology: The data has been used for Nifty and CBOE exchange for 2018-19. To analyse the determinants, options mispricing in B-S model is explained. The linear Granger causality test has been used to identify potential variable to determine implied volatility smile.
Findings: The study finds difference in volatility in both the markets. It is advocated that European market is more mature than nascent Indian market.
Value: Derivatives being the instruments of hedging needs to be developed in India. In this regard the paper study the relationship between implied volatility and money-ness has been analysed and compared in both the markets. The determinants affecting volatility has been identified.