Issue On Stock Index Futures’s Pricing、Function And Risk Regulation

In the foreseeable future, the financial system and the structure of China will be confronted with further changes, which will increase the threat of financial systemic risk. In consideration of the regeneration of China’s stock index futures market, it is of theoretical and practical reference value to sort out a systematic study of the stock index futures market. In addition, the financial industry, as the core of the economic system is bound to be integrated into the global financial system gradually. On the one hand, cross-border capital flows In China will increase. Considering the immature capital markets, the vulnerability of the banking sector as well as the low-level of financial regulation, a sudden reversal of capital flows can easily lead to domestic systemic risk. On the other hand, under the pressure of international competition, China stock index futures market, along with other parts of the capital market are having an increasingly closer relationship as well as a closer risk contact, which will increase the possibility of risk occurrence of the stock index futures market. This paper argues that we should have a profound understanding that the stock index futures are a "double-edged sword", which is not only a risk management tool, but also will bring risk due to improper use. When reviewing the existing research literature on Stock index futures we find that there is still not a systematic and comprehensive analysis on index futures pricing, features and regulatory strategies of risks. Here we focus on market pricing, features and risks of the stock index futures, which will take China stock index futures market as an example. The purpose of this topic is to deepen the understanding of the stock index futures market, which is of practical and theoretical significance.The first part is the first chapter, which will be a brief introduction to the research background, significance as well as the logical framework, methods and the main content of this paper. We conducted a research on the pricing, features and risks regulation of the stock index futures market, which is inspired by the "China Guangdawulongzhi" incident. Besides, with the further reform and opening up China’s financial markets, stock index futures, as the newborn financial innovations are facing great challenge. To conclude, it is of great theoretical and practical significance to carry out this detailed study on pricing, features and risks of the stock index futures market.The second chapter is the second part of this article, which is the literature review and necessary comment, and the literature review here also focus on the three aspects of pricing, features and risks. Specifically, this section first analyses the literature on the basic logic of the pricing of stock index futures an well as empirical research on stock index futures prices deviation from the theoretical equilibrium value arbitrage. And we find that the traditional use of non-equilibrium model for stock index futures arbitrage pricing model has many limitations, which leaves a lot of factors to be considered. Then, section2of this part has an overview of the basic functions of the stock market, followed by some related comment. In this section, we finally have an overview on the risk of stock index futures, and carry out an detailed commentary from the perspective of six aspects--Marxist theory on the economic crisis, the virtual capital and credit; Keynes and Hicks theory of normal backwardation charges; financial risk management and the development of micro-VAR risk management; the awareness of some international organizations on stock futures like financial derivatives; measurement and control of specific risks of foreign stock index futures as well as domestic related measurement and control of the risks of stock index futures.In Chapter3, we point out the shortage of existing stock index futures arbitrage pricing model. Then we apply the model of Cox, Ingersoll and Ross (CIR,1985) to establish a classical general equilibrium framework to analyze the pricing of financial assets. Besides, in the framework of general equilibrium we analyze the pricing of stock index futures market in consideration of the interaction of futures, currency, credit markets and between stock index futures,as well as the pricing of stock index futures and spot prices are both endogenous parts of general equilibrium.In Chapter4, we analyze the current development and the functions of China’s stock index futures market. Based on statistical data, we find thatthe stock index futures market does reduce the overall volatility of the stock marketsince its first open. Then we further have a theoretical analysis about the features of stock index futures market of promotingthe capital market and risk-sharing, which mainly applied the completeness theory of financial markets. We prove that China’s launch of stock index futures market has improved the short mechanisms of Chinese securities market and promoted a comprehensive capital market while the classic modern finance theory suggests that a comprehensive capital market can achieve effective allocation of resources through risk sharing. So we argue that the introduction of China’s stock index futures has theoretically improvedthe function of China’s financial system configurations. An empirical analysis on the function of price discovery and the risk-volatility-spillover mechanism is carried out on China’s stock index futures market. We first have a related literature review and the have an empirical analysis using the Chinese stock index futures data. The empirical analysis modelapplies the recursive cointegration and the asymmetric ECM-GARCH model to examine the price discovery function of China’s stock index futures and the risk of fluctuations in China stock index futures market spillovers.The empirical results show that the current stock index futures market has not exerted the function of price discovery, and the spot market plays a dominant role in price discovery process. The high entry barriers of China’s stock index futures market is one explanation of this phenomenon, which will exclude many traders outside of the trading in stock index futures market. The empirical model of risk volatility spillovers indicates the presence of bidirectional volatility risk between the stock index futures market and spot market. It means that the risk fluctuation originated either in China Stock index futures market or spot market will be conducting to the other one. Besides, theempirical results also suggest the impact of basis asymmetric effects.When it comes to the fifth part, we give a detailed exposition on stock index futures market risks. There are two types of risks--the microscopic risk and the. We analyze the micro-risk from the perspective of the design and regulatory of stock index futures contract, mainly talking about settings on contract margin and price limits as well as manipulation of the final settlement price. Following the above analysis, we put forward certain measures to control the microscopic risk. On the other hand, policy regimes contribute to the macroeconomic risk, mainly for risk regulation and control of the stock index futures market. So in terms of the macro-risk control,we compare the risk supervision departments and institutions on stock index futures market in the U.S. and the UK, followed by analysis of the specific measures to further strengthen China’s stock index futures regulators.The main innovation of this paper is the following four aspects. First, different from the traditional index futures arbitrage pricing model, the paper build a general equilibrium model of stock index futures prices in market environment with stochastic interest rate and uncertainty,in consideration of the interactions between futures, currency and credit markets as well as endogenous equilibrium determining part of stock index futures and stock index. Second, the paper constructs a complete framework to theoreticallyanalyze the promotion of China’s securities market andgive a rigorous proof using the completeness theory of financial markets. Third, we innovatively apply the recursive cointegration to examine price discovery function. The empirical results show that the price discovery function of China stock index futures market is still not that evident. In addition,the application of asymmetric ECM-GARCH model to analyze the risk of fluctuations in China stock index futures market spillovers indicates the presence of bidirectional volatility risk between the stock index futures market and spot market. Fourth, the stock index futures risk is first classified from a macro and micro perspective. Then we analyze the design and supervision of the micro-risk and the control of macro-risk from the perspective of government regulation.