Analyzing Risk Implications: Fixed Income's Impact on Derivative Pricing in the Bond Market

Ing. Nirav Bipinchandra Vyas

Master's thesis

Abstract:

This study delves into the impact of specific financial metrics associated with the fixed income sector, particularly bonds, on forecasted volatility within the Bond Futures market. This volatility bears significant implications for options pricing. This study examines the Implied Volatility Index's effectiveness as a predictive tool for options market volatility and assesses its sensitivity to bond market signals. Utilizing data from March 2014 to October 2023, the study applies Principal Component Analysis (PCA) regression methods to identify the key factors within the bond sector that influence this index.. This study is focused on advancing strategies to effectively manage the volatility often encountered in options trading. It does so by thoroughly exploring how changes in the bond market can impact the Index of Implied Volatility, an essential measure for anticipating market price shifts. By deepening the understanding of these interactions, the research aims to arm traders with superior analytical tools and insights. This enhanced toolkit is expected to aid traders in making more accurate predictions and decisions, ultimately leading to better risk management and trading performance.

Keywords

Economic markers, forecasting volatility, futures in the bond market, the fixed income sector, elements originating from the fixed income field, volatility control, the Index of Implied Volatility, and the regression analysis model

Language used: English

Date on which the thesis was submitted / produced: 23. 4. 2024

Thesis defence

• Date of defence: 18. 6. 2024
• Supervisor: Ing. Miroslav Halouzka, CSc.
• Reader: doc. RNDr. Petr Budinský, CSc.

University of Finance and Administration

Master programme / field:
Economics and Management / Economics and Management