Research On Pricing Of Shanghai 50ETF Option Based On CGARCH Model

With the launch of the first option written on index in Chinese stock market,the Shanghai 50 ETF,many domestic scholars have studied the option pricing issues.Options have a function of price discovery,and studying the pricing of 50 ETF options is conducive to effective resource allocation between the capital market and the financial market;It is helpful for us to make more reasonable investment decisions,and is useful to realize the connection between capital and the market,allocate resources scientifically,and promote the market More stable and effective development.However,option trading is with certain risks and has a great impact on the market.We need to understand the corresponding derivative pricing models and specific methods on a theoretical level,and then make sure that the options and underlying assets play a good role in market stabilizing and price adjusting.It is of great significance to allocate resources and improve the efficiency of utilization.Since the application of BS model to option pricing,many scholars have expanded the assumptions of BS model,which have rich research in option pricing.This paper is mainly divided into the following parts:(1)based on the BS model,the options are priced by HNGARCH,EGARCH,TGARCH and CGARCH models.Firstly,the volatility in CGARCH model is divided into long-term and short-term volatility components from a statistical point of view,and the parameter estimation results are obtained by using the maximum likelihood estimation method,and examines how well different models fit the logarithmic return distribution of the Shanghai 50 ETF.(2)The estimated parameters of each model are transformed from the real measure to the risk neutral measure.Under the risk neutral measure,combined with the moment generating function,the option pricing formula is derived by using the Fourier transform method,obtained the price of 50 ETF option under several models,and analyze the performance of different models in the pricing of 50 ETF option.(3)Analyze the volatility term structure of the CGARCH model,uses the Monte Carlo simulation method to price options,Finally,the CGARCH model is tested out of sample.According to the empirical research,it is concluded that:(1)the earnings data of the50 ETF index has obvious peak and thick tail characteristics,and there is a volatility clustering effect;(2)using the BS model,HNGARCH model,CGARCH model,EGARCH and TGARCH models for option pricing,the result of the option pricing is: For the CGARCH model that splits the long-term and short-term component,the pricing error is slightly better than the GARCH model of the HNGARCH model,EGARCH model,and TGARCH model,and the GARCH model is superior to the constant volatility model,Which is the BS model.(3)From the perspective of volatility structure,for ATM options,under three volatility levels,the price derived from the CGARCH model is relatively close to the market price;under high and medium volatility,the market for options The price is higher than the price derived from the model;as the actual value of the option increases,the higher the option price,the closer the option price calculated by the HNGARCH model and the CGARCH model,and the lower the actual value of the option,that is,the equal value option and the virtual option For value options,the price derived from the CGARCH model is closer to the real market price.(4)The out-of-sample inspection of the CGARCH model found that,the out-of-sample analysis performance of the model is also superior to the HNGARCH model and BS model.The basis of option pricing is to describe the volatility of the underlying assets,The main contribution of this paper is to introduce the CGARCH model with two GARCH components,which can better describe the long-term and short-term structure of volatility.The research results show that the pricing effect of CGARCH model is better.The conclusion of the study can supplement the current theoretical system of option pricing and provide reliable theoretical support for the construction of domestic option pricing system.