Template-Type: ReDIF-Article 1.0 Author-Name: Nawdha Thakoor Author-X-Name-First: Nawdha Author-X-Name-Last: Thakoor Title: Finite difference solutions of the CEV PDE Abstract: This work studies the valuation of European options under the constant elasticity of variance model. The model generalises the Black-Scholes framework for option pricing by incorporating a local instantaneous volatility term which is a function of the stock price. The model has the ability to fit certain implied volatility structures exhibited by market option prices, but the computation of the closed-form European option formula is not always stable and can be largely inaccurate for some parameter ranges because of the difficulties associated with the computation of the non-central chi-square distribution in the valuation formula. As an alternative to one line of research which aims at accelerating and stabilising the analytical price computation, we study finite difference techniques to obtain European option prices and associated hedging parameters. It is numerically demonstrated that a direct discretisation of the pricing equation in combination with an exponential integrator in time performs better than other schemes based on Crank-Nicolson discretisations of two transformed problems, one posed on an infinite domain and the other on a finite domain. Journal: Int. J. of Financial Markets and Derivatives Pages: 59-75 Issue: 1/2 Volume: 9 Year: 2023 Keywords: option pricing; constant elasticity of variance; CEV; European options; finite difference scheme; exponential time differencing. File-URL: http://www.inderscience.com/link.php?id=129086 File-Format: text/html File-Restriction: Access to full text is restricted to subscribers. Handle: RePEc:ids:ijfmkd:v:9:y:2023:i:1/2:p:59-75 Template-Type: ReDIF-Article 1.0 Author-Name: Simon Dreesmann Author-X-Name-First: Simon Author-X-Name-Last: Dreesmann Author-Name: Tim Alexander Herberger Author-X-Name-First: Tim Alexander Author-X-Name-Last: Herberger Author-Name: Michel Charifzadeh Author-X-Name-First: Michel Author-X-Name-Last: Charifzadeh Title: The Commitment of Traders report as a trading signal? Short-term price reversals and market efficiency in the US-futures market Abstract: The Commitment of Traders report (CoT) has been around for over 30 years, consistently revealing the futures positions of key market players. This study's primary aim is to use the comprehensive data from the Commitment of Traders reports to develop a short-term reversal trading strategy. Against the benchmark, a S%P 500 buy-and-hold approach with a Sharpe ratio of 1.07, the CoT long only strategy generated significant results in six individual markets. Extending the strategy to long-and-short, two markets outperformed the benchmark significantly. However, a scenario analysis indicated underperformance of the CoT strategy when traded in a portfolio, confirming that the chosen strategy parameters could not generate excess Sharpe ratios. Our results indicate that the Commodity Futures Trading Commission, more specifically the CoT report, contributed to efficient derivatives market. Journal: Int. J. of Financial Markets and Derivatives Pages: 76-113 Issue: 1/2 Volume: 9 Year: 2023 Keywords: futures short-term reversal trading strategy; Commitment of Traders report; portfolio optimisation; Monte Carlo simulation; efficient derivatives market. File-URL: http://www.inderscience.com/link.php?id=129093 File-Format: text/html File-Restriction: Access to full text is restricted to subscribers. Handle: RePEc:ids:ijfmkd:v:9:y:2023:i:1/2:p:76-113 Template-Type: ReDIF-Article 1.0 Author-Name: Nikiforos Laopodis Author-X-Name-First: Nikiforos Author-X-Name-Last: Laopodis Author-Name: Theophano Patra Author-X-Name-First: Theophano Author-X-Name-Last: Patra Author-Name: Vassilis Thomas Author-X-Name-First: Vassilis Author-X-Name-Last: Thomas Title: Dynamic correlations of bond and equity futures and macroeconomic determinants: international evidence Abstract: This paper examines whether the dynamic co-movements between stock-bond futures markets may be driven by domestic and international macroeconomic factors. The empirical analysis also investigates whether economic uncertainty and geopolitical risks have an impact on the dynamic conditional correlations of bond and equity futures markets. The results pointed to significance of domestic inflation and industrial production, while the 3M USD Libor and 3M Euribor surfaced as determinants of the dynamic equity-bond futures correlations. Finally, the paper examines the impact of the pandemic on the dynamic correlations with the split of the sample in pre- and post-pandemic periods and it was found that neither the uncertainty nor the geopolitical risk indices emerged as statistically significant in any country. Journal: Int. J. of Financial Markets and Derivatives Pages: 114-135 Issue: 1/2 Volume: 9 Year: 2023 Keywords: bond-equity futures; DCC-GARCH; macroeconomic variables; economic uncertainty indices; geopolitical risk. File-URL: http://www.inderscience.com/link.php?id=129096 File-Format: text/html File-Restriction: Access to full text is restricted to subscribers. Handle: RePEc:ids:ijfmkd:v:9:y:2023:i:1/2:p:114-135 Template-Type: ReDIF-Article 1.0 Author-Name: Dimitra Loukia Kolia Author-X-Name-First: Dimitra Loukia Author-X-Name-Last: Kolia Author-Name: Simeon Papadopoulos Author-X-Name-First: Simeon Author-X-Name-Last: Papadopoulos Title: The effect of bank diversification on the capital, risk, profitability and efficiency of the eurozone and the US banks in the aftermath of the global financial crisis Abstract: This paper investigates the influence of bank diversification on bank capital, risk, profitability and efficiency in a dynamic panel estimator. We also examine: 1) how the influence differs depending on the type of diversification (asset, income, non-interest income diversification); 2) whether diversification affects the eurozone banks differently than the US banks; 3) which banking type (commercial, cooperative and savings banks) is more benefited from diversification. Our findings indicate that income diversification has substantial benefits when compared to other types of diversification. Whereas non-interest income diversification has the most unfavourable results for the reported groups. Additionally, the impact of asset diversification is mixed for the dependent variables and it is contingent on whether a bank belongs to eurozone or to the USA. Finally, our survey highlights how different bank types (commercial, cooperative or savings banks) are influenced by bank diversification. Journal: Int. J. of Financial Markets and Derivatives Pages: 1-42 Issue: 1/2 Volume: 9 Year: 2023 Keywords: bank; capital; risk; efficiency; profitability; data envelopment analysis; adjusted Herfindahl-Hirschman indices; system-GMM. File-URL: http://www.inderscience.com/link.php?id=129097 File-Format: text/html File-Restriction: Access to full text is restricted to subscribers. Handle: RePEc:ids:ijfmkd:v:9:y:2023:i:1/2:p:1-42 Template-Type: ReDIF-Article 1.0 Author-Name: William J. Procasky Author-X-Name-First: William J. Author-X-Name-Last: Procasky Title: The relative efficiency of investment grade credit and equity markets Abstract: I examine the relative efficiency of investment-grade CDS and equity markets using a set of liquidly tradable indices for both markets. Prior research has focused on manually constructed indices created from matched portfolios for the equity market. While this results in a matching of constituents, it only produces a theoretical trading instrument. Moreover, that research has only examined the 5-year CDS maturity whereas I also examine the 10-year, which better matches the indefinite life of a stock. Finally, I investigate the potential for size bias. I observe that the longer-dated CDS maturity and an equally weighted equity index in which large capitalisation bias is removed are informationally inefficient, with the equity market having a relative advantage. While no such advantage is observed in the other indices, overall results indicate liquidly traded indices are not as efficient as manually constructed matched portfolios and arbitrage profits may be possible using specifically paired indices. Journal: Int. J. of Financial Markets and Derivatives Pages: 43-58 Issue: 1/2 Volume: 9 Year: 2023 Keywords: credit derivatives; market efficiency; price discovery; lead-lag relationship; credit markets; CDS indices. File-URL: http://www.inderscience.com/link.php?id=129100 File-Format: text/html File-Restriction: Access to full text is restricted to subscribers. Handle: RePEc:ids:ijfmkd:v:9:y:2023:i:1/2:p:43-58 Template-Type: ReDIF-Article 1.0 Author-Name: Riadh Benammar Author-X-Name-First: Riadh Author-X-Name-Last: Benammar Author-Name: Adel Boubaker Author-X-Name-First: Adel Author-X-Name-Last: Boubaker Author-Name: Anas Elmelki Author-X-Name-First: Anas Author-X-Name-Last: Elmelki Title: Is cryptocurrency still a safe haven for assets in light of the COVID-19 waves? Evidence from wavelet coherence analysis Abstract: This paper uses the wavelet coherence approach and the wavelet-based Granger causality test, to investigate the effect of the five waves of the COVID-19 pandemic on Bitcoin, Ethereum, BNB, Cardano, Ripple, Dogecoin, TRON, Litecoin, Stellar, and Bitcoin Cash in a time-frequency framework from 22 January 2020 to 22 February 2022. The results show the presence of correlation between the COVID-19 pandemic and cryptocurrencies in the short-medium term, and a positive impact on Bitcoin only during the first wave of the pandemic in the medium term. However, Cardano failed to act as a risk diversifier. In the long-term, our analysis shows that Ethereum, BNB, Ripple, Dogecoin, TRON, Litecoin, Stellar, and Bitcoin Cash proved their ability as strong safe haven assets, even during different periods of the COVID-19 crisis. Our results can provide helpful information for policymakers, and cryptocurrency market main and hedge funds managers during periods of uncertainty. Journal: Int. J. of Financial Markets and Derivatives Pages: 155-169 Issue: 3 Volume: 9 Year: 2023 Keywords: cryptocurrency; COVID-19 waves; uncertainty; safe haven; wavelet coherence. File-URL: http://www.inderscience.com/link.php?id=133454 File-Format: text/html File-Restriction: Access to full text is restricted to subscribers. Handle: RePEc:ids:ijfmkd:v:9:y:2023:i:3:p:155-169 Template-Type: ReDIF-Article 1.0 Author-Name: Vijay Kumar Sharma Author-X-Name-First: Vijay Kumar Author-X-Name-Last: Sharma Author-Name: Satinder Bhatia Author-X-Name-First: Satinder Author-X-Name-Last: Bhatia Title: Knowledge mapping of studies on implied volatility in equity derivatives markets: a bibliometric approach Abstract: This review paper is designed to study the intellectual structure of publications on 'implied volatility' in the equity derivative market after reviewing 254 research articles published since 2001 and indexed in Scopus database. The study conducted knowledge mapping using Microsoft Excel and VOSviewer software to analyse the collected data using performance analysis and scientific mapping approaches. The result of this study suggests that there has been a significant increase in research publications on this subject over the past ten years, but there is still very little study on this topic. The USA, China, the UK, and Australia are major contributors to research studies on implied volatility. India, is the world's largest index options market, but its research contribution lags far behind China, the USA, the UK, or Australia. The result of this study is unique in the field of 'implied volatility' as it is among very few studies on 'equity derivatives' which is providing in-depth bibliometric analysis and research trend in the past two decades. To the best of the authors' knowledge, this unique review paper will help the researchers and other academics to explore the research area on 'implied volatility'. Journal: Int. J. of Financial Markets and Derivatives Pages: 188-207 Issue: 3 Volume: 9 Year: 2023 Keywords: implied volatility; implied volatility surface; option pricing; literature review; bibliometric analysis. File-URL: http://www.inderscience.com/link.php?id=133457 File-Format: text/html File-Restriction: Access to full text is restricted to subscribers. Handle: RePEc:ids:ijfmkd:v:9:y:2023:i:3:p:188-207 Template-Type: ReDIF-Article 1.0 Author-Name: Haoran Zhang Author-X-Name-First: Haoran Author-X-Name-Last: Zhang Title: The short-selling restriction and the post-crisis financial futures market in China Abstract: The short-selling restriction set during the 2015 Chinese Financial Crisis affects the Chinese financial markets. However, since it was implemented through soft regulation, the restriction is invisible to many market participants. Without official statements about the restriction after the crisis, the short-selling volume is still low compared to the pre-crisis period, implying the short-selling restriction remains in effect. But the impact of the short-selling restriction on the financial futures market vanishes in 2017, indicating that the short-selling volume is big enough to maintain the spot-futures market's efficiency. Furthermore, three stock index futures are compared in terms of short-selling difficulties. The level of short-selling difficulties is positively related to the level of deviations from the cost-of-carry model, supporting that the short-selling restriction is the main driver of the deviations from the cost-of-carry equilibrium in China. Journal: Int. J. of Financial Markets and Derivatives Pages: 137-154 Issue: 3 Volume: 9 Year: 2023 Keywords: Chinese futures market; short-selling restriction; stock index futures; China. File-URL: http://www.inderscience.com/link.php?id=133458 File-Format: text/html File-Restriction: Access to full text is restricted to subscribers. Handle: RePEc:ids:ijfmkd:v:9:y:2023:i:3:p:137-154 Template-Type: ReDIF-Article 1.0 Author-Name: N. Dileep Author-X-Name-First: N. Author-X-Name-Last: Dileep Author-Name: G. Kotreshwar Author-X-Name-First: G. Author-X-Name-Last: Kotreshwar Title: Designing rainfall index based futures contracts: analysis of basis risk Abstract: The basis risk is the difference between rainfall recorded in meteorological subdivisions (MSD) and rainfall recorded in rain gauge stations. Basis risk is an inherent problem in rainfall index-based derivatives contracts, because the payout in rainfall index-based derivatives depends on the strike and actual rainfall recorded at the locations where parties entered into the contract. As a result, the proposed study seeks to ascertain whether a basis risk exists in the South Interior Karnataka Meteorological Subdivision (SIK MSD). The study used monthly monsoon rainfall data for the years 2013-2020. The statistical tools like mean, standard deviation, coefficient of variation, and correlation analysis show that there is a basis risk in SIK MSD. The result of the hypothesis testing with the t test proved that there is a basis risk in SIK MSD for the study period. Therefore, the study designed city-based rainfall index-based futures (RIBF) contracts for the farming community and MSD-based RIBF contracts for those who are willing to take the contracts on a pan-India basis. Journal: Int. J. of Financial Markets and Derivatives Pages: 170-187 Issue: 3 Volume: 9 Year: 2023 Keywords: basis risk; rainfall derivatives; rainfall index-based futures; RIBF contracts; South Interior Karnataka Meteorological Subdivision; SIK MSD; strike rainfall. File-URL: http://www.inderscience.com/link.php?id=133460 File-Format: text/html File-Restriction: Access to full text is restricted to subscribers. Handle: RePEc:ids:ijfmkd:v:9:y:2023:i:3:p:170-187 Template-Type: ReDIF-Article 1.0 Author-Name: Rinky Author-X-Name-First: Author-X-Name-Last: Rinky Author-Name: Shakti Singh Author-X-Name-First: Shakti Author-X-Name-Last: Singh Title: An empirical testing of Black-Scholes option pricing model: a study of option moneyness (at-the-money) Abstract: Derivative being a rapidly expanding financial instrument, attracts researchers/investors for analysis/investment. For analysing or making a profit, researchers and investors make assumptions about the call/put option price based on historical volatility on different strike prices of different moneyness. This study is concentrated on ATM moneyness on 'near month contracts' since these contracts' pricing is more accurate because they have the highest probability of being achieved before expiration. This research also examines the precise formula for determining the theoretical pricing of call and put options by executing the paired sample t-test from SPSS software. To determine the pricing accuracy, these BSM theoretical (fair) prices are compared to the NSE (actual) historical prices quoted on the market. The research is conducted on call and put options for five most popular IT stocks listed on the NSE with a monthly expiration for the preceding five years from April 2017 to March 2022. Journal: Int. J. of Financial Markets and Derivatives Pages: 208-229 Issue: 3 Volume: 9 Year: 2023 Keywords: Black-Scholes model; BSM; IT industry; call and put option; ATM moneyness; volatility; near month expiry. File-URL: http://www.inderscience.com/link.php?id=133462 File-Format: text/html File-Restriction: Access to full text is restricted to subscribers. Handle: RePEc:ids:ijfmkd:v:9:y:2023:i:3:p:208-229