Impact of Future Derivatives on Stock Market Volatility Derivatives have been the subject of discussion in the financial world after being accused of being the main reason for a financial crisis so deep that it hit the global economy in 2007. Therefore, modeling asset returns and evaluating stock market volatility, and whether derivatives have a substantial effect on stock market volatility, is still the key task of every finance professional as it provides much needed information on the risk patterns involved in the investment process. Financial gurus suggest that the stock market normally exhibits high levels of price volatility and causes investor concerns about unpredictable outcomes, however with the launch of derivatives in the 1990s in major financial centers, stock market volatility has become more complicated with the offering of derivatives. new areas and areas of hedging and speculation. Therefore, it is 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 would be launched with the dual objectives of increasing liquidity and mitigating risk. However, the financial world is still trying to understand whether these goals have materialized or not as this carries both theoretical and practical importance. Therefore, with the help of stress test models such as GARCH and other models, we will examine the impact of future derivatives on stock market volatility. Introduction: The completeness of the market has generated the need to introduce innovative financial instruments with the aim of creating efficient portfolios and safety from price fluctuations. Therefore, with the offering of futures and other derivative instruments...... middle of paper......mici, this method was developed by Boolersleva and Taylor. GARCH models have the ability to allow the conditional variance to depend on its prior lags. Therefore, this method allows the current variance entered into the model to be interpreted as a weighted function of the previous period's volatility and the previous period's adjusted variance. It is believed to be better than the ARCH model, although GARCH(1,1) can be further generalized with the GARCH(p,q) model, but since GARCH(1,1) captures enough volatility, most practitioners avoid the GARCH(p,q) model. GARCH(1,1) is expressed as: Works Cited Afsal, Mallikarjunappa e. THE IMPACT OF DERIVATIVES ON THE STOCK MARKET. Research report. Kerela, India: ASIAN ACADEMY of Management Journal of Accounting and Finance, 2008. PDF document.O'Connor. "Derivative Instruments". Institute, CFA. Derivatives. Boston: Custom, 2011. 11-34. Press.