An Empirical Study On The Functions Of Stock Index Options

Stock index option,with the rapid development of global derivatives products market,emerges and is of great importance in various types of financial derivatives.Tied to underlying stock indexes,stock index option has been playing an important role in price mechanism,risk management,hedging mechanism,and improving capital use efficiency,and enriching and bettering financial market structure.Hence,the in-depth research into stock index option's functionality and the strategy to develop stock index option in China have always been issues of concern to field of finance.This paper focuses on the theory and empirical analysis of stock index option function.Firstly,based on the classification of the research in this field both at home and abroad,this paper illustrates the relations among stock index options,stock spot,and stock index futures from the perspective of macro and micro level,and analyzes the positive function and negative function of stock index options in theoretically,which is the theoretical basis of whole research.Then,from the empirical point of view,this paper uses the optimized and innovative econometric model to analyze stock index option's functions,including price discovery,risk aversion,resource allocation and the corresponding extensions of those functions.And those results are combined with the latest data to undertake in-depth study of stock index option's functional mechanism and functional effect.Specifically,first of all,taking the noise impact on option and time-varying property of 50 ETF option into consideration,this paper studies the contribution of price discovery function,a brand-new field,since the open trading of 50 ETF option.The conclusion is that the 50 ETF option market has been further perfect with development,which covers more effective information,but the price discovery function still needs to be improved.Secondly,index stock option is an effective finance instrument for avoiding management risk.This paper,selecting 50 ETF option as an example,conducts Greek letter measurement and aversion analysis,illustrating the effectiveness and functionality of stock index option in risk aversion.By using the function of stock index options,investors or financial institutions pursuit to maintain Delta,Gamma and Vega neutral,continuously adjust their portfolios,to circumvent the risk of price and the market.Thirdly,using GARCH and EGARCH model,this paper examines the volatility of stock market after introducing 50ETF option.Also,by studying China's four neighboring finance derivatives markets,this paper analyzes and determines the effectiveness and functionality of stock index option's resource allocation function.The empirical results found that since the stock index options have been traded,50ETF often quickly corresponds with the stock spot market and stock index futures market,boosters the financial market trading atmosphere,effectively enhances the investor's market participation,and improves the capital market liquidity,the efficiency of the market.Lastly,this paper,based on the results from empirical analyses of stock index option's functions,and combing with the current status and characteristics of Chinese securities market,proposes the alternative paths of stock index option being introduced in China,and the strategy to develop stock index option in terms of functionality.At the end,this paper summarizes the conclusions and makes more expectation of stock index option.With the development of domestic derivative product market,clearly there will be more experts and professionals to commence deep research,and it would make domestic option market completely.We believe that these researches about financial derivatives will improve domestic option market development,further promote the development of China's multi-tiered capital market,and bring the remarkable achievement to domestic economic and financial industries.