Pricing And Empirical Research On Chinese Stock Index Futures

CSI 300 Stock Index Futures was launched on April,2010, representing that financial derivatives were initiated in China and would spread out in the future. On one hand, capital market in China improved gradually with the development of CSI 300 Stock Index Futures, but on the other hand, it met with more challenges. From 2011 to 2014, volume of financial futures increased from 50 million shares to 217 million shares, turnover of financial futures rose from 43.77 trillion RMB to 164.01 trillion RMB, and the percentage of turnover in the futures market grew from 7.24% to more than 56%. Despite that CSI 300 Stock Index Futures, as the dominator in financial futures, expand rapidly and aggressively, financial futures market in China still has a long way to go to mature market.It is vital to study stock index futures pricing models. First of all, with the Price Discovery, stock index futures prices reflect market information and predict the overall trend in spot index. The prediction would be far better with the help of accurate pricing model. Secondly, arbitrage activities are beneficial to rebalance the market price, prevent excessive speculation and keep the financial system stable afterwards. It is only in the circumstance of good pricing model that arbitrage strategy could be executed fully.This thesis focus on pricing of Chinese stock index futures. After engaging in extensive reading of bibliography, I find no one explores CSI 300 Stock Index Futures by using intraday transactions data from the perspective of imperfect market pricing model, this thesis has made efforts to close the gap. The objectives of thesis are CSI 300 Stock Index Futures and Hang Seng Index Futures, standing for emerging market and mature market respectively. Five-minute transactions data between September,2013 and August, 2014 are involved in empirical research. Empirical results indicate that over 98% of degree of market imperfection in CSI 300 Stock Index Futures lie between 0 and 1, while over 99.9% of that in Hang Seng Index Futures range from 0 to 1. Analyses in the relation between degree of market imperfection and the ratio, as mentioned above, conclude that the higher degree of market imperfection, the worse performance of hedged portfolio. Further discussion concludes that pricing error is caused by degree of market imperfection, and the conclusion is not affected by different estimation methods in dividend yield. In addition, pricing error does decrease significantly when maturity of futures contracts approach.Comparing CSI 300 Stock Index Futures with Hang Seng Index Futures in both cost of carry model and imperfect market pricing model, cost of carry model prices Hang Seng Index Futures better because Hang Seng Index Futures market is more highly evolved, and more close to perfect market which cost of carry model requires. Still, cost of carry model overprices both stock index futures, which is consistent with others findings. The pricing error estimated by imperfect market pricing model is smaller than that estimated by cost of carry model, no matter CSI 300 Stock Index Futures or Hang Seng Index Futures.