Futures Options Predict Volatility, Revolutionizing Risk Management Strategies
The article explores how European futures options can be seen as options on a futures bond, allowing standard option pricing techniques to be used. It also looks at additional rules for American futures options. The study examines the efficiency of various futures option markets and investigates how accurately Black's model prices at-the-money American futures options. The researchers also explore the relationship between how market participants predict futures price volatility and the time until the futures contract matures.