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Tackling Investment Risks Using Equity Options During Extreme Economic Upheavals: Indian Evidence

Authors:

Babu Jose,

St. Thomas College, Palai, IN
About Babu
Department of Commerce
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James Varghese

St. Thomas College, Palai, IN
About James
Department of Commerce
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Abstract

The study is an empirical scrutiny on the Indian equity options market to examine whether it facilitates the reduction of investment risks, focusing on an economic sphere with financial upheavals. The risk mitigation ability is examined with respect to the integration of near-month call and put options markets having different levels of exercisability with the equity market in the National Stock Exchange of India. The optimal size of options contracts required for establishing a hedge portfolio that minimises the risk exposure to a maximum possible magnitude and the level of gains resulting from such hedges are identified following the minimum variance approach, using Diagonal BEKK GARCH. The results indicate that ATM, ITM, and DITM call options and ATM, OTM, DOTM, and DITM put options provide effective risk reduction that can be efficiently utilised by the existing as well as prospective
investors in the equity market.

How to Cite: Jose, B. and Varghese, J., 2021. Tackling Investment Risks Using Equity Options During Extreme Economic Upheavals: Indian Evidence. Colombo Business Journal, 12(1), pp.1–28. DOI: http://doi.org/10.4038/cbj.v12i1.69
Published on 29 Jun 2021.
Peer Reviewed

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