The Conversion Arbitrage Of Index Options Based On The Overvalued Implied Volatility

Index option in China is to be listed soon, and the test trading has offered access to the true system and rules in it. Expectation analysis is of importance and.According to the history of warrant trading in China, the rules of options trading may be distinguished with theory results. The curve of implied volatility might upswing, which is caused by the market overbuying.The article offers experiment according to PCA analysis, which gives a scrutiny into the relations among options in the money, out the money and at the money, besides, the index future, which is considered as a hedge replacement, is involved in the process.Then, conversion arbitrage based on the real data is tried, the P&L results demonstrate a delta neutral market making trading strategy. It might be an helpful manual when the listing day comes.