Impact of future derivatives on stock market volatilityDerivatives have been in the news in the financial world after being accused of being the main reason for a financial crisis as deep as affected the global economy in 2007. Thus, modeling asset returns and assessing stock market volatility and whether derivatives have a substantial effect on the volatility of the Stock market remains the key task of any financial professional as it provides much-needed insight into the risk patterns involved in the investment process. Financial gurus suggest that the stock market normally exhibits high levels of price volatility and creates investor concerns about unpredictable outcomes. However, with the launch of derivatives in the 1990s in major financial centers, stock market volatility became more complicated with the offering of derivatives. new areas and scope of hedging and speculation. It is therefore important to examine the impact of derivatives on stock market volatility. (O'Connor)At the time of the introduction of derivatives, it was said that they were launched with the dual objectives of increasing liquidity and mitigating risk. However, the world of finance is still debating whether these goals have been achieved or not, as they are of both theoretical and practical importance. So, using stress testing models like GARCH and other models, we will examine the impact of future derivatives on stock market volatility. Introduction: The completeness characteristic of the market has generated the need to introduce innovative financial instruments with the aim of creating efficient portfolios as well as security against price fluctuations. Thus, with futures contracts and other derivative instruments offering ......middle of paper ......micians, this method was developed by Boolersleva and Taylor. GARCH models have the ability to allow the conditional variance to depend on its previous lags. Thus, this method makes it possible to interpret the adjusted current variance in the model as a weighted function of the volatility of the previous period and the adjusted variance of the previous period. Condlut better than the ARCH model, although GARCH(1,1) can be generalized further with the GARCH(p,q) model, but since GARCH(1,1) captures sufficient volatility, most practitioners avoid the GARCH model (p, q). GARCH(1,1) is expressed as: Works Cited Afsal, Mallikarjunappa et. THE IMPACT OF DERIVATIVES ON THE STOCK MARKET. Research report. Kerela, India: ASIAN ACADEMY of Managment Journal of Accounting and Finance, 2008. PDF document. O'Connor. “Derivative instruments”. Institute, CFA. Derivatives. Boston: Custom, 2011. 11-34. Print.