Research On The Delta Dynamic Hedging Performance Of SSE 50ETF Option Based On The Heston Stochastic Volatility Model

Option is a popular risk management tool having abundant function and flexible application in financial derivatives market.With exchange-traded options developing rapidly,people deepen understanding on the application of options.The structure products basing on options play a vital role in the prosperous financial markets.In November 1998,the first ETF option contract traded in American stock exchanges.Following the last decade in 21 century,the options trading volume witnessed an 8800% growth.With CSRC?China Securities Regulatory Commission?authorized,SSE 50 ETF option contracts publicly traded in February 9^th,2016.That means financial markets in China enter the option era.ETF options has been developing several decades in American and European financial market,therefore,the oversea markets has developed a complete trading strategy tactics.However,as the lockage of option exchange-trading data,though domestic scholars have an in-depth study research in options' theoretical knowledge,the research about SSE 50 ETF option still be in the start-up stage.Up to this article finished,SSE 50 ETF option contracts has been traded for nearly 2 years,therefore,it produces enough data for this article's research about option price models and the compare about different price models' hedging effects.The emphasis of this article is the Delta dynamic hedging for SSE 50 ETF option using Heston stochastic volatility model.This article also choose BS model for comparing the Delta dynamic hedging effects with Heston model.Besides,it calculate the option's theoretical prices using implied volatility.Then,the different volatility model has been used for comparing Delta dynamic hedging effects in BS model.The research results show that using GARCH?1,1?volatility producing the best hedging effects.By comparing Heston-Nandi model with BS model basing on GARCH?1,1?volatility,this article shows Heston-Nandi model produce better Delta hedging effect just in hedging earning.