Thomas Kokholm receives grant of DKK 2.6 million from DFF

2020.05.18 | Birgitte Højklint Nielsen

Thomas Kokholm

Elisa Nicolato

Associate Professor Thomas Kokholm has received DKK 2,652,533 from the Independent Research Fund Denmark for his project entitled ”The interplay between volatility speculators, institutional hedgers and market disruptions”. Associate Professor Elisa Nicolato is also involved in the project.

Project description:
The market for volatility products has gained increasing popularity ever since the introduction of the first VIX futures in March 2004 on the Chicago Board Options Exchange. We propose research that explains how an increase in demand for short positions in volatility puts pressure on the level of the VIX volatility index via hedging channels. We argue that the VIX index should be considered more as an asset and less as a risk indicator. Moreover, we aim to build a model that captures how an increased volume on VIX products has implications for the broad stock market in general. In particular, we wish to study how negative shocks to the stock market are amplified via volatility dealer hedging demand channels, with possibly harmful impact on financial stability. Finally, we suggest a way regulatory authorities can ensure financial stability by imposing a cap on the volatility position of the derivatives dealer. The proposal contains both theoretical and empirical contributions.

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