Volatility Discovery on Markets for Derivative Financial Products

Dissertation project by Dr. Milena E. Tieves

In Germany, prices for more than one million structured financial products (“certificates”) are quoted every day on a high-frequency basis. Do these prices entail new information regarding the price discovery process of the underlying? Or, do these prices of retail derivatives just reflect lagged underlying prices with a certain timespan?

The research project focuses on these and on related questions. Econometric methods, such as multivariate stochastic processes and information share measurement, are employed to provide answers.

One of the main topic of our presented research project is leaded by the question how expectations about stock-market-volatilities of market participants affect prices of derivative financial products, e.g. prices of warrants. We hope the results of the research project will enhance the comprehension of expectation building process regarding potential risks for market participants.

Market-structure models play an important role in the area of microeconomic research. Since the 1980s, information share measure are developed and used to examine command structures in price discovery processes. Is there a single market/market segment leading the value-finding process while the residual markets follow this particular leadership market? We aim to transfer price discovery measure to volatility discovery measure, so easing restrictions of considering a “real” price instead of determining a general value as given by an implied volatility.

On the one hand, research project’s impact is caused by fundal explication of the significance of single markets or single market segments and possible consequences for investor’s choice of trading facilities. On the other hand, knowledge of leadership in volatility discovery processes plays an important role while considering potential risk sources for stable markets during period of crisis. Especially in instable times, the existence of few issuers taking leadership and controlling volatility discovery processes would be of great interest.

• R. Baule, B. Frijns, M. Tieves: Volatility Discovery and Volatility Quoting on Markets for Options and Warrants.
  Journal of Futures Markets 38 (7/2018), 758–774.
  Presentation at the 2017 Derivatives Markets Conference, Auckland, 11.08.2017.
• Baule, R.; Frijns, B.; Tieves, M.: Information Shares in Stationary Time Series and Global Volatility Discovery.
  Working Paper, Hagen/Auckland 2017.
  Presentation at the 34th International Conference of the French Finance Association, Valence, 31.05.2017.
  Presentation at the 6th Auckland Finance Meeting, Auckland, 17.12.2016.
  Presentation at the Financial Management and Financial Institutions Working Group (GOR AG FIFI), Augsburg, 04.04.2016.
  Presentation at the International Doctoral Seminar (IDS), Gießen, 17.07.2015.
• R. Baule, M. Tieves, H. Wilke: Preisfindung und Informationsführerschaft auf Aktienmärkten.
  Wirtschaftswissenschftliches Studium 46 (9/2017), 18–25.