Applied Research On Implied Volatility And Spread Of SSE 50 ETF Option

With the rapid development of our country’s capital market and the continuous deepening of its opening to the outside world,market participants’ demand for risk management tools has increased significantly.On February 9,2015,the Shanghai Stock Exchange officially launched the SSE 50 ETF option,which is the first exchange-traded option in China.On December 23,2019,the Shanghai Stock ’Exchange,Shenzhen Stock Exchange and CFFEX launched CSI 300 ETF options and CSI 300 stock index option respectively.This is of great significance to further meet investors’ hedging needs,improve the risk management system of our country’s capital market,and promote the steady and healthy development of the capital market.Compared with trading directly in the spot market,the options contract itself has the advantages of leverage,short selling,and lower transaction costs,which makes investors with information advantages prefer to trade in the options market.Option prices themselves are affected by many factors,and their prices fully reflect investors’expectations for future market trends and risks,so option prices contain a wealth of information.At present,international research on options products mainly focuses on individual stocks and index options in the United States.Considering the differences in market microstructure,market breadth and depth,and regulatory policies between China and the United States,the existing conclusions of foreign research,is it also established in the Chinese market?Based on this purpose,starting from the characteristics of our country’s stock and option market,this paper studies the implicit information of our country’s option market,trying to find new research conclusions.This paper will focus on return forecasting,volatility forecasting and investment portfolio issues.The specific research contents are as follows:First,this paper reviews the development of SSE 50 ETF options,and points out the characteristics of our country’s stock and options markets.The exercise price of SSE 50 ETF options has a large interval,is protected by dividends,and is liquidated by physical delivery.Strict authority management is implemented for individual investors’option transactions.At the same time,retail traders account for more than 80%of our country’s stock market,and the market has obvious characteristics of high volatility.How will the differences in market characteristics between China and the United States affect existing research?Therefore,it is necessary to carry out systematic research on our country’s option market,trying to find new research conclusions.Second,different from the left-biased pattern presented by the U.S.market,the"smile curve" of the SSE 50 ETF options has an obvious symmetrical or right-biased pattern,and there is a significant difference in the implied volatility of call and put options,indicating that options have price pressure in the market.To this end,this paper constructs three different spread indicators to explore their ability to predict returns.The study found that the implied volatility spread has a significant predictive ability for overnight returns,and the direction is consistent with the theoretical analysis,and it is more significant in high volatility market conditions;but the results of intraday return forecasts are reversed,and is more pronounced in low volatility market conditions.The out-of-sample test confirms the information-increasing effect of implied volatility spreads on the forecast of overnight returns.Further,by constructing a binary GARCH model,this paper finds that the information spillover effect of the option market on the spot market is mainly concentrated in the overnight stage,specifically the information transmission through the volatility channel,while in the intraday time period,the information spillover effect of the options market on the spot market The effect is not significant.Thus,the internal mechanism explanation is provided for the research of this paper.Third,it explores the improvement effect of the market’s implied volatility index on realized volatility forecasts.Through two linear interpolations,this paper constructs an ATM-30-day implied volatility index.This was used as an explanatory variable to augment the HAR model,and the realized variance was calculated using 5-minute highfrequency data as a proxy for underlying volatility.To evaluate out-of-sample forecasting performance,this paper conducts rolling forecasts 1 day,5 days,10 days,22 days,and 66 days ahead,and evaluates the forecasting effect by combining loss function,Mincer-Zarnowitz regression,and DM test.The research results show that the implied volatility contains very different information from the realized volatility,and the addition of the implied volatility can significantly improve the prediction accuracy.Fourth,Chapter 4 shows that implied volatility spreads do not have significant predictive power on daily returns and thus cannot be extended to yield timing applications.Chapter 5 shows that implied volatility can significantly improve volatility forecasting,so it can be extended to volatility timing applications.On this basis,this paper considers the allocation problem between risk-free assets and market portfolios.Further,this paper also considers the application of option implied information in optimal allocation of multi-risk assets.The research results affirm the role of option implied information in enhancing investment returns in asset allocation.The systematic research of this paper has certain theoretical and practical application value for the risk management,investment decision-making and the healthy development of the multi-level capital market of our country’s capital market participants.