Pricing SSE 50ETF Options Using Realized Volatility

This article examines option pricing performance using realized volatility considered the impact of the overnight and jump effects.First,we use five minutes of high-frequency data to calculate daily realized volatility,and analyze statistical results;Second,Since Realized-GARCH and HAR-RV models are good at volatility forecasting,and these two models not only widely used in mature markets such as Europe,but also successfully apply in China,we use the Realized-GARCH and HAR-RV models as the representative of the realized volatility model to conduct volatility modeling and forecasting;Third,We combine the predicted volatility with the corresponding rate of return equation for option pricing with the Monte Carlo simulation;Finally,we evaluate the option pricing results of the realized volatility models with the Black-Scholes model and GARCH model,and test the fitting results with the SPA method.The empirical results show that the option pricing models based on realized volatility have higher accuracy than the classical Black-Scholes model and GARCH(1,1)model,The closer maturity date,the higher accuracy of pricing of each model Realized volatility option pricing model—Realized-GARCH and HAR-RV model has its advantages,for the at-the-money call option,the result of option pricing of the Realized-GARCH model and HAR model considered the risk premium is similar;for the in-the-money call option,the advantage of the Realized-GARCH option pricing model is more obvious;for the out-of-the-money call option,the advantage of the HAR option pricing model considered the risk premium is more obvious.Realized volatility(RV)and the Hansen and Lunde(2005)adjusted realized volatility(RVhl)have their own advantages for option pricing,but the effect of the overnight adjusted realized volatility(RVsr)is relatively poor,for the at-the-money call option,the HAR-RV model without considering the effect of overnight and without treated by the Hansen and Lunde(2005)performs better than other similar models of the option pricing under the assumption of risk premium;for the out-of-the-money call option,the HAR-RVh1 model treated by the Hansen and Lunde(2005)performs better than other similar models of the option pricing under the assumption of risk premium;the result of option pricing of the HAR-RVsr model that only plus the Square of overnight return on the RV is relatively poor,because if we only plus the Square of overnight return on the RV,the realized volatility may depend on the discretization error.The more intense of market volatility,the pricing advantages of realized volatility models are more significant,which reflects the advantages of time-varying volatility;While the HAR-RV-CJ model considered the jumping factor does not significantly improve the effect of the option pricing.