Scott Mixon

What Does Implied Volatility Skew Measure

This paper provides theoretical guidance and empirical analysis aimed at differentiating among implied volatility skew measures. Industry analysts and academics use a variety of measures, but most have little formal justification. I find that most commonly used skew measures are difficult to interpret without controlling for the levels of both volatility and kurtosis. Many ad hoc measures fail to meet the conditions for a valid skewness ordering. My preferred measure is the (25 delta put volatility - 25 delta call volatility)/50 delta volatility; among the measures considered, it is the most descriptive and least redundant.

Dividend Swaps and Dividend Futures: State of Play

The authors of this article use derivatives regulatory data to quantify the over the counter (OTC) index dividend swap market and contrast it with the listed index dividend futures market. They find US

Volatility Derivatives in Practice: Activity and Impact

2.5 billion in notional outstanding of market-facing OTC dividend swaps between dealers and end users, with another US

Exploring Commodity Trading Activity: An Integrated Analysis of Swaps and Futures

4 billion outstanding between dealers. The majority of the dealer–dealer swaps are in the S&P 500 (which has no listed futures contract), whereas the majority of transactions for non-U.S. underlyings are between dealers and end users. Although very standardized OTC swaps and listed futures coexist for several major indexes, only the listed EURO STOXX 50 future clearly dominates the OTC market, with nearly five times the notional outstanding of the OTC swaps. The authors observe an average of around one end user transaction per week for the OTC EURO STOXX market, with less activity in other indexes. Risk transfer appears to be largest for the EURO STOXX 50, with dealers net short nearly US

Political and Monetary Uncertainty During the Greenback Era: Evidence from Gold Options

1 billion notional to end users.

U.S. Experience with Futures Transactions Taxes: Effects in a Highly Intermediated Market

We use unique regulatory data to examine open positions and activity in both listed and OTC volatility derivatives. Gross vega notional outstanding for index variance swaps is over USD 2 billion, with dealers short vega in order to supply the long vega demand of asset managers. For maturities less than one year, VIX futures are far more actively traded and have a higher notional amount outstanding than S&P 500 variance swaps. To the extent that dealers take on risk when facilitating trades, we estimate that the long volatility bias of asset managers puts upward pressure on VIX futures prices. Hedge funds have offset this potential impact by actively taking a net short position in nearby contracts. In our 2011‐2014 sample, the net impact added less than half a volatility point, on average, to nearby VIX futures contracts but added between one and two volatility points for contracts in less liquid, longer‐dated parts of the curve. We find no evidence that this price impact forces VIX futures outside no‐arbitrage bounds.

Integrating swaps and futures: A new direction for commodity research

This paper presents an analysis of new, regulatory data on commodity swaps, focused on West Texas Intermediate (WTI) crude oil. We find that commercial end-users have a much larger footprint in the WTI swaps space than financial end-users do. Commercials have a much larger exposure in swaps than in futures and are net short in both markets. Financial end-users are smaller in swaps than in futures and are net long in both markets. Swap Dealers perform a substantial amount of intermediation among WTI longs, WTI shorts, and index investors; consequently, net dealer exposure to hedge in futures markets is far less than the gross swap exposure.

The Foreign Exchange Option Market, 1917-1921

This paper presents unique evidence on financial market expectations during the monetary regime uncertainty of the 1870s. The analysis incorporates quantitative evidence from the option market as well as qualitative evidence from the contemporary financial press. Credibility of monetary policy fluctuated dramatically during this period. Contrary to the impressions given by historians, I find that Grants 1874 veto of the Inflation Bill did not eliminate fears of inflation. I also conclude that the Resumption Act had significant impact on the expectations of market participants. The evolution of political uncertainty explains market expectations better than standard economic variables do.

Practical Applications of Dividend Swaps and Dividend Futures: State of Play

The transactions tax on futures sharply reduced trading volume on wheat and corn contracts during the 1920s and 1930s but had no apparent effect on volatility or market quality. I find no evidence of a tax effect on open interest: I hypothesize this is because the relative magnitude of the tax was significantly higher for intermediaries than for other participants. Instead, the tax appears to have substantially reduced intra-day trading but not longer-term positioning. Volume-related proxies of liquidity therefore exhibit a strong relation with tax rates, but other measures of market quality show no relation to tax rates. In the long-run, however, exchange members doubled the minimum tick size in order to retain a large number of market makers and offset the impact of the tax.