Research On Option Straddle Combination Strategy Based On Different Volatility Models

Financial derivatives were created in 1970 s.They have been important tools to speculation,arbitrage and hedging because of their special features such as cross period,leveraging,interactivity and high risk.Accompanied by the fast development of Chinese financial market,number of Chinese financial derivatives is growing gradually.However,as an important type of financeial derivates,not until 2015,the first option of China--50 ETF Option can be traded in Shanghai Stock Exchange.And after that,Soybean meal option and White sugar option could be tarded in Exchang.50 ETF option has a function of referance for other options.In 2015,Chinese stock market experienced from bull market to crazy bull market.However,things changed quickly two stock crash hit Chinese stock market in August 2015.And after that was the totally loss of liquidity.Currently,institutional investors play an important role in the exchange of 50 ETF option.Their main purpose is to manage risk.Under normal conditions,they choose hedging to close a position before the exercise day rather than exercise their options.Meanwhile,along with the approach of exercise day,time value of options will decrease.If there is any chance of option arbitrage is the research emphasis of this paper.This paper research straddle options contract based on different volatility models.The data of this paper is got from Wind data base.Basing on the closing price of the third Wednesday of every month and previous 499 trading days,I establish GARCH models,stochastic volatility models,and volatility models based on high frequency data and calculate the implied volatility of the options which will be exercised this month based on the B-S-M model.Afterwards,I start to arbitrage.First,I forecast the volatility and calculate the annual volatility.Second,I forecast the price of underlying asset by Monte Carlo simulation and take the average value as the forecasting price.Third,according to the criterion of max(S,X)-min(S,X)-P1-P2,I choose a call option and a put option which have the same strike price.S is the predicted price of 50ETF;X is the strike price;P1 is the price of call option;P2 is the price of put option.Fourth,I conduct trace-back on different combinations of taking a position and closing a position and choose a best combination.I find that straddle options contract based on four types of volatility models get the largest income and rate of return when they take a position at opening and close a position at closing.Straddle options contract based on stochastic model gets the largest income and Straddle options contract based on HAR-lnRVmodel gets the largest rate of return...