Empirical Study On Soybean Meal Futures Option Pricing Based On The Least Squares Monte Carlo Simulation

At present,our option market is in the growth stage.The gap between our country and other countries like United States,Canada in options and its derivatives is still very large.Soybean meal options,the first domestic commodity options,officially traded on the Dalian Commodity Exchange in March 31,2017,which means Chinese commodity options have taken a historic step forward.Of that,option pricing is the most important part of the whole option transaction.Firstly,this paper expounds the theoretical basis of American option pricing,including Brown movement,the Ito process and its' lemma,Black Sholes model.Secondly,introduces the volatility models,like EWMA and GARCH.Thirdly,presents the numerical solution of option pricing,especially the most feasible Least Squares Monte Carlo simulation whose core thoughts and steps are well illustrated.When using Least Squares Monte Carlo simulation to price soybean meal futures options,this paper use soybean meal spot volatility to replace futures volatility.Then,using GARCH(1,1)model estimate annualized volatility,that is 9.84%.What's more,using interpolated SHIBOR rates discount every node on the Monte Carlo simulation path.At last,this paper uses Matlab to program to solve,getting each contract of M1709 option' simulated price.The simulated price that differ the price in March 31,2017,the first days of trading,is about 38.06 yuan.Of that,the average difference between simulated price and actual call option price is 39.79 yuan,and the average difference between simulated price and actual put option price is $36.32 yuan.While the simulated price that differ the price in April 12,2017 is about 20.86 yuan.Of that,the average difference between simulated price and actual call option price is 25.24 yuan,and the average difference between simulated price and actual put option price is $16.47 yuan.Spreads significantly reduced,which is mainly due to overestimation of implied volatility in the initial listing period.As the transaction proceeds,implied volatility gradually reduced and tended to be rational.On the whole,the Least Squares Monte Carlo simulation is effective for soybean futures option pricing.