Option Arbitrage Strategies Based On Implied Volatility Surface

Option is an important financial derivative,which has the nature of risk restriction and nonlinear profit and loss structure.Option is an effective risk management tool that is widely used by traders.Volatility arbitrage is one of the characteristics of option trading.If traders predict the right volatility,the volatility arbitrage strategy can be constructed and traders can benefit from a long-term deal.There are a lot of volatility arbitrage strategies in the market,and only a few traders analyze how to build the best option portfolio in different volatility arbitrage strategies.The accurate estimation of volatility is the key volatility arbitrage strategy.Implied volatility is a good measure of market volatility,so it is widely used.At present,the study of implied volatility is still in the initial stage in China.These studies mainly focus on the implied volatility smile and term structure,and implied volatility surface research is obviously insufficient.In this context,this paper summarizes previous research results and attempts to address the following two questions: one is the choice of the best option in the arbitrage strategy,and the other is how to estimate the volatility more scientifically and effectively.The research of this paper can be divided into three parts,which are the basic theory and the implied volatility modeling and establishment and test of arbitrage strategy.(1)In the first part,this paper summarizes the relevant theories,and defines the concept of options.Since the BS pricing model is the theoretical basis of implied volatility,this paper introduces it in detail.Then,this paper summarizes the theoretical research of volatility.Finally,this paper studies the implicit volatility surface.(2)In the third part,it is the contribution and innovation of this paper.The innovations of this paper are as follows: First,the implied volatility is expressed as a linear function of the strike price and the maturity of the implied volatility parameter model.However,these models do not consider the time value of funds.Therefore,on the one hand,the value is used to replace the strike price.on the other hand,the implied volatility model is changed.Implied volatility is expressed as a function of the ratio of value to maturity.Second,it is not an effective way to solve the problem of estimating the volatility of the stochastic process.Therefore,this paper studies the correlation between the parameters,and introduces the VAR model to the analysis of the implied volatility surface.In this paper,the implicit volatility surface model is constructed by two steps.In the first step,based on the empirical analysis of the implied volatility parameter model,the VAR model is used to describe the dynamic relationship between the parameters.The second step is to establish the implied volatility surface model which is composed of the implied volatility parameter model and the two variable VAR(2)model.The empirical analysis shows that the improved implied volatility parameter model has a better estimation of the Shanghai 50 ETF put option,and the implied volatility surface is efficient and sustainable.(3)In the part of establishment and test of arbitrage strategy,this paper reviews the basic principles of volatility arbitrage.In order to capture the signal,this paper introduced the Boolean orbit.When the track breaks through the upper or lower tracks,this paper considers that the volatility is abnormal,and the volatility can be traded.Arbitrage results show that arbitrage strategy is successful and effective.Through the research,this paper attempts to give an arbitrage strategy,and obtains a stable implied volatility surface model.This not only provides a useful reference for traders to construct arbitrage strategies,but also may promote the research on the surface of implied volatility.