Applied Research On Pricing Method Of Chinese Stock Index Futures Based On Arbitrage

In recent years, China's stock market has made a great progress. The number of listed companies increases rapidly and the industry layout becomes more reasonable; the total value and daily turnover of the stock market grows larger and larger and the investors become more and more diversifying. The development of the stock market greatly benefits our country's economic prosperity. However, as an important part of the capital market, the financial derivatives market in China is still a blank. Financial derivatives market is critical to the economic development, as well as the pricing rights in the international financial market. Financial derivatives market is one of the strategy goals of our country's capital market, thus its establishment is inevitable.China's exchange rates and interest rates are not entirely determined by the financial market. So, the interest rate futures and foreign currency futures have no necessary conditions for launching. According to China's specific conditions, stock index futures will be the first variety of China's financial derivatives. Once the stock index futures has been taken off, it will become the core issue to price the futures effectively.In this paper, an applied research on pricing method of Chinese stock index futures based on arbitrage theory was made, as well as an empirical analysis using the data of HS300 index and stock index futures simulative trading. This paper mainly includes five parts: the first part gave an introduction of the stock index futures and our country's specific conditions; the second part summarized the classic theories on pricing stock index futures and analyzed the practicability of the theoretical models; the third part analyzed the circumstances of our country's capital market and adopted ETF portfolios to simulate the HS300 current assets. Needed ETF portfolios was built and all the costs of arbitrage, including explicit transaction cost, risk-free interest rate, market impact cost and ETF portfolios' tracking error were determined; the fourth part confirmed the feasibility of the cost of transaction model on pricing stock index futures and practicability in Chinese market by empirical tests; the last part gave several conclusions of the research, illustrated the inadequacies and market constraints, and made some suggestions for the follow-up researches.