Research On Implied Liquidity Of Stock Option

The financial derivatives represented by stock options and stock index futures have the function of hedging the systematic risk in stock market.Compared with the symmetric hedging of stock index futures,stock options can retain the earnings brought by favorable price changes while avoiding risks caused by unfavorable favorable price changes,so it has an asymmetric hedging function.Especially under the situation that the stock market booms irrationally and stock market bubble is going to break,stock options have become a safe haven for rational investors.This indicates that stock options imply priori information of stock market risk.Most previous studies reflect the volatility or market risk of the stock market through implicit volatility.However,except for the market risk caused by price fluctuations,there are liquidity risks in stock market that not only related to prices,but also to trading volume.The volatility index of stock options only contains the information of stock price fluctuation without the liquidity information of stock market.Therefore,it is necessary to reflect the liquidity information of stock market through stock options and measure the implied liquidity of stock options,which also are the purpose of this study.Based on the theoretical methods such as option pricing,market microstructure and implied volatility,this study carries out the research on implied liquidity of stock options.Firstly,the implied liquidity measurement model under price method is constructed.Based on the fluctuation of price difference caused by the imbalanced supply-demand relationship of stock options,the index of implicit relative spread(IRS)is estimated and the stock market liquidity is depicted.Secondly,the implied liquidity measurement model under quantitative method is constructed.Based on the call-put option parity formula,the implicit relative depth(IRD)index is estimated to reflect the stock market depth information.Thirdly,the implied liquidity measurement model under valence-quantity combined method is constructed,including the univariate geometric Brownian movement implied liquidity model and the bivariate Itotian process implicit liquidity model.The former is an option pricing formula based on liquidity correction for estimating index of implicit liquidity ratio(ILR);the latter is based on a bivariate BS differential equation for estimating index of implicit liquidity elasticity(ILE).Both indexes reflect the stock market liquidity level.Fourthly,the term structure and delivery structure of implied liquidity under price method,quantitative method and price-quantity combined method are analyzed to propose a method for calculating the implicit liquidity-weighted index,and establish implicit liquidity index for Chinese stock market.By means of Markov state transition,the trend of implicit liquidity index is analyzed.Based on the GARCH models,the volatility of implicit liquidity index is analyzed.The periodicity of implied liquidity index is discussed via wavelet decomposition and spectral analysis methods.Fifthly,the Fama-French five-factor model,BS option pricing model,fuzzy neural network option pricing model,and early warning system model of stock market crisis are adjusted by using implicit liquidity indexes,and the pricing effect of above models are verified.The main conclusions of this study are as follows:Firstly,under price method,the implied relative spread of depth out-of-money options can reveal the liquidity crisis in stock market earlier,and this index is more sensitive to the decline of liquidity;the adjusting of volatility parameters in the model through model-free implied volatility can improve model interpretation effect.Secondly,under quantitative method,the implied relative depth of flat options can accurately depict the stock market liquidity.Third,under the price and quantity combined method,the implicit liquidity ratio of different money call options can effectively reveal stock market liquidity.Using the ETF option of Hengsheng H share to adjust the empirical samples,it shows that the three models and their empirical results are robust.Fourthly,the term structure analysis finds that investors in low strike price call options are more pessimistic about the future liquidity expectations of stock market,while investors in high strike price put options are more optimistic about the future liquidity expectations of stock market.The analysis of delivery structure shows that the farther the strike price deviates from the spot price of underlying asset,the greater the value of implied liquidity index of the call option under the price-quantity combined method,which presents "liquidity smile" feature.The analysis of the nature of implicit liquidity index indicates that the main trend of implicit liquidity index is "slowly rising",and its volatility can be estimated by EGARCH model.The high-frequency signals in the index are obviously periodic.Fifthly,the implicit fluidity variable is added in the Fama-French five-factor model,the research shows that this variable is an irreplaceable pricing factor because it significantly improved the explanatory power of Fama-French five-factor model,which also indicates that there is liquidity premium in Chinese stock market.The implicit liquidity is adopted to adjust BS option pricing model and fuzzy neural network option pricing model,which shows that the pricing accuracy of these two models is significantly better than that of BS option pricing model.Using the implied liquidity to adjust the early warning system model of stock market crisis,the research shows that the model can reveal the stock market crisis early.The study of liquidity from stock options market,which is outside the stock market system,reveals the liquidity of stock market,and it has the "A bystander is always clear-minded." effect,which offers a new way to find the stock market liquidity problems,carry out early warning in advance.In this paper,the measurement system of implied liquidity is constructed,and the method for estimating implied relative spread,implicit relative depth and implied liquidity ratio are proposed.Based on the 50ETF options market,an empirical test is conducted to discuss the structure and nature of implied liquidity,which is also applied to the study of liquidity-adjusted assets pricing.All these have not been involved in previous studies.Liquidity is the vitality of the securities market.This study provides a theoretical guidance and practical operation method for describing the liquidity of stock market,preventing liquidity crisis and developing the research of liquidity and asset pricing relationship,which has important research significance.