Study On The Predictive Ability Of SSE 50ETF Option’s Model-free Implied Volatility And Its Volatility Spread

Volatility plays an important role in option pricing,and how to select a suitable model to effectively estimate volatility has always been a hot and difficult issue in option volatility research.Some scholars have studied the overseas option market and found that compared with other volatility prediction models,the model-free implied volatility can better reflect the information contained in the option price.Shanghai Stock Exchange launched the first intra-market option contract in China on February 9,2015.As the only stock index option in China,is the model-free implied volatility prediction ability of SSE 50 ETF option better than other volatility models? Can the model-free implied volatility spread of SSE 50 ETF option affect the volatility of the underlying asset 50 ETF fund? Can the model-free implied volatility spread of SSE 50 ETF option affect underlying asset or option’s trading volume?On the basis of summarizing the relevant theories and research literature,this paper introduces the common methods of volatility estimation.Five-minute high-frequency data of SSE 50 ETF option and 50 ETF fund from February 9,2015 to June 30,2018 are selected to compare and analyze the predictive ability of model-free implied volatility,realized volatility and BS model implied volatility.The results show that: model-free implied volatility of SSE 50 ETF option has better prediction ability than realized volatility and BS model implied volatility.At the same time,this paper studies the influence of model-free implied volatility spread on underlying assets volatility and underlying assets and options trading volume.The results show that the model-free implied volatility spread of second-month options has no significant predictive ability on 50 ETF fund’s volatility,while the return of near-month options is more significant,and the predictive ability is affected by SSE 50 ETF option and 50 ETF fund’s liquidity.This paper also finds that the model-free implied volatility spread of SSE 50 ETF option has a significant predictive ability to the SSE 50 ETF option’s trading volume,but it does not find that it has a significant predictive ability to the 50 ETF fund’s trading volume.