How Does Standardization Work in Derivative Markets? Evidence from the Options on Jgb Futures

To be listed on the exchange market, derivative products are standardized, which contributes to the existence of the highest liquid derivative market. In this study, we take advantage of the Japan Exchange Group’s (JPX) reform of the standardization of JGB futures options. Under low yield and volatility in the JGB market, the JPX has changed the strike price intervals of the JGB futures options from JPY 0.5 to JPY 0.25, which is the first attempt by the Exchange. Using this reform, we empirically demonstrate that the JPX reform improves liquidity in the options on JGB Futures market