A study of the correlation between volatility and risk diversification control in options and futures markets

Abstract

With the continuous development of financial derivatives, many enterprises increasingly prefer using financial derivatives such as options and futures when hedging their risks. However, in the process of using them, many enterprises do not use them as a tool for risk hedging but instead use them for hedging or even try to achieve short-term wealth appreciation through options and futures trading, which is contrary to the original intention of enterprises to use financial derivatives. At the same time, financial derivatives are affected by market volatility. Without professionals to carry out risk control, it will be a double-edged sword; using bad will become a sword to stab at the enterprise. This paper adopts the illustrative method and literature research method to analyse the impact of market volatility and the importance of risk control of options futures by taking the example of the German metal company trying to hedge through options futures in 1993, which ultimately caused the enterprise to fall into difficulties.