Research On Term Structure Of Option Implied Volatility Based On Nelson-Siegel Model

Since the reform and opening up,Chinese financial market construction,especially the development of financial derivatives market has made great achievements.The de velopment of financial derivatives market not only provides a large amount of financia I support for economic growth,but also contributes to the stability of macroeconomic system and the improvement of capital allocation efficiency.In modern financial mark et,implied volatility reflects investors expectation of volatility of future underlying sec urities.It plays a very important role in portfolio,asset pricing and risk management,and contains huge economic value.On February 9th,2015,Shanghai 50 ETF option was formally listed in China,fu rther improving the financial derivatives market,marking the formal entry of China's f inancial market into the option era.Previous studies on the term structure of the 50 E TF options in the Shanghai Stock Exchange have mainly focused on the Standard&a mp;Poor's 500 Index and the Hong Kong Small Hang Seng Index,while few studies on the term structure of the implied volatility of the 50 ETF options in China.This paper extends the Nelson-Siegel model to the term structure of implied volat ility,combined with the advantages of the Nelson-Siegel model to study the time seri es of implied volatility components of Shanghai 50 ETF options.Firstly,the implied volatility series of Shanghai 50 ETF is selected.Through the model results and implie d volatility time series diagram,it is found that there is a significant implied volatility smile phenomenon in Shanghai 50ETF options,implied volatility curve has skewness,implied volatility has a certain relationship with maturity.Then a simplified implicit volatility component model is proposed to describe the characteristics of the term struc ture of the implied volatility of the Shanghai Stock Exchange 50ETF option.By obser ving the market,it is found that the term structure of the implied volatility is quite si milar to the term structure of the interest rate.Therefore,Nelson-Siegel,a mature and effective term structure of the interest rate literature,is selected.The Nelson-Siegel model is used to simulate the term structure of implied volatility.According to the an alysis of the results of the model,it is found that the shorter remaining period,the b etter fitting effect of the model;and with the increase of remaining period,the implie d volatility shows a downward trend,and this trend is decreasing.Finally,the VAR m odel is constructed to test the unit root,Granger causality,impulse response function and variance decomposition,and the relationship among the three factors is analyzed e mpirically.Curvature factor has positive effect on horizontal factor and slope factor,c urvature factor has positive effect on horizontal factor and slope factor.Short term im plied volatility has the greatest impact on the implied volatility in the medium and lo ng term.