The Financialization of Crude Oil Options: An Analysis of the Effects of S&P 500 Implied Volatility on Crude Options Pricing

Abstract

This study analyzes the effects and prevalence of financialization within the sphere of crude oil options. By applying the logic and methods of studies done on the topic of futures, I examine the relationships between equity options and crude oil options to what extent do they track each other and explore possible causes and sensitivities. This study finds a clear relationship between the two markets, but notes the constantly evolving strength of correlation depending on the idiosyncratic nature of the current economic period examined.