A Study On Arbitrage With Derivatives In Chinese Market

The launch of stock index futures and margin financing&securitieslending makes it possible to go short in Chinese Stock Market. Moreover,the preparation of Treasury bond futures, index option and stock optionwill accelerate the development of derivatives. Under these circumstances,arbitrage strategies are becoming more and more popular and grabbing theattention of both researchers and investors. Hence, the research onarbitrage strategies in Chinese stock market has great theoretical andapplicable value.Based upon Chinese stock market, the paper studies arbitrage strategiesincluding index futures&ETF arbitrage, Alpha arbitrage and Treasurybond futures arbitrage. As impact cost plays a significant role in arbitrage,we analyze liquidity of stock index futures via historical data feed,providing support for estimation of impact cost. Regarding programtrading and implementation of arbitrage, the dissertation proposes severaloptimized techniques from perspectives of data feed process andauto-trading. In particular, the main content and innovative points of thispaper include followings:(1) Stock index futures arbitrage and impact of dividend. After detailedanalysis of cash flow and consideration of various costs involved in trading,we figure out the boundary of cash and carry arbitrage. To measure the impact of dividend, we analyze the periods when underlying stocks payingdividend and basis between index and its futures. We get followingconclusions: It’s more appropriate to estimate dividend ratio via specificannouncement of dividend payout rather than the annually average way.(2) The procedure of Alpha arbitrage and the VaR-based estimation ofcash reserve ratio. The dissertation presents a procedure of Alpha arbitragethat includes multi-factors based portfolio construction, calculation ofhedge ratio and position of futures, dynamic adjustment for varieties of βand margin, and close of position. By checking all historical daily return ofindex futures, we estimate cash reserve ratio by a VaR-based approach,improving capital efficiency under certain risk control.(3) Quantitative and multi-angle analysis of liquidity of index futures.As the liquidity analysis is essential for estimation of impact cost, thepaper defines “nontrade window ratio”,“instant volatility” and “spread” tomeasure liquidity of index futures from a quantitative approach, providingreal data support for estimating impact cost.(4) Preview of Treasury bond futures and optimized techniques ofprogram trading. As for the upcoming Treasury bond, we studyinternational development and related theories, introduce the core conceptslike convert factor and cheapest to deliver (CTD), analyze principle ofbasis arbitrage. Furthermore, we discuss the application of program tradingin arbitrage implementation. From data feed and auto-trading perspectives,we propose optimized techniques like live calculation for IOPV of ETF,algorithmic trading and minimum risk exposure order.