Marie-Hélène Gagnon

Interdisciplinary seminars
French-Japanese webinar

Marie-Hélène Gagnon

Université Laval
Information Transmission and Volatility-Based Trading Strategies in Commodity Futures and Options Markets
Joint with
Constant Aka, Gabriel J. Power
online
Date(s)
Friday, February 28 2025
9:00am to 10:00am
Contact(s)

Gilles Dufrénot: gilles.dufrenot[at]sciencespo-aix.fr
Kiyotaka Sato: sato[at]ynu.ac.jp

Abstract

How is volatility transmitted between options and futures contracts, and can this information transmission be used to generate profitable trading strategies? We examine the bidirectional relationship in volatility between commodity options and futures markets for key commodities to learn about how each market influences the other. To this end, we estimate volatility forecasting models using random forests and we calculate connectedness and spillover measures. We find that futures volatility has a strong but short-lived impact on option volatility, while option volatility has a longer lasting effect on futures volatility, confirming a bidirectional volatility transmission. We further document important net spillovers from options to futures. Moreover, predictive analysis shows that option markets generally lead futures markets in terms of providing information that is relevant for trading strategies. We obtain more accurate futures volatility predictions and trading strategies generate superior economic gains.

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