Research On Option Pricing Model And Hedging Strategies Of SSE 50ETF

Option pricing has always been an important issue in the field of financial mathematics,opti-ons are also financial derivatives that are essential for risk hedging and risk aversion when investors are investing.The traditional BS model is the benchmark model of financial market pricing and trading,but because some of its assumptions can not meet the needs of the actual market,so in recent years,the research on option pricing has gradually extended it to the based on Levy process,which is a kind of stochastic process with right continuous left limit,independe-nt increment,stable increment and other properties,it can better describe the asset price return rate of occurrence of jumping,peak thick tail and other phenomena.This paper uses two sub-class processes(VG process and NIG process)of pure jumping Le-vy process are combined with fast Fourier transform(FFT)and Monte Carlo simulation(MC)to study the issue of SSE 50ETF option pricing,and use the variance the minimum hedging strateg-y analyzes the hedging effects of the pricing model and the BS model applied to the SSE 50ETF options respectively.The article mainly researches from five aspects:Firstly,review the classic BS pricing model and apply it to the pricing research of SSE 50ETF options;Secondly,studies th-e descriptive statistical characteristics,normality test and the fitting effect of log return distribut-ion and three kinds of random process distribution(normal,NIG,VG)of SSE 50ETF log return,and estimates the parameters of pure jump Levy process by maximum likelihood estimation;Thir-d,under the fast Fourier transform,a pricing theorem is established for the SSE 50ETF price ret-urn rate to obey the pure jump Levy process.The theorem first derives the logarithmic characteri-stic function expression of the SSE 50ETF price through the risk-neutral pricing theory,and the-n perform a fast Fourier transform on it to obtain a purely Levy-FFT pricing model;Fourthly,un-der the premise that the return rate of asset price obeys the pure jump levy process,the pure jump Levy-MC pricing model is derived by combining with the MC method.Under the risk neutral pri-cing theory,this model first deduces the path model that the price return rate of SSE 50ETF obe-ys the pure jump Levy process,then uses MC to simulate the price of different paths of SSE 50-ETF,and finally calculates the price of SSE 50ETF option through the risk-free interest rate disc-ount;Fifthly,The results of the above three pricing models are compared with the actual market price,and analyze the applicability and effect of different pricing models applied to the pricing of SSE 50ETF options,the error analysis of different pricing models is performed by using four stati-stical indicators:average absolute error(MAE),average absolute error percentage(MAPE),root mean square error(RMSE),and root mean square relative error(RMSRE).The empirical part of this article selected three copies SSE 50ETF call options that expire on June 26,2019.The research results show that:from the analysis of the return on the underlying asset,the fit degree of 50ETF return rate with NIG process and VG process is better than that of normal process;From the analysis of calculation efficiency,pure jump Levy-FFT model is more efficient than pure jump Levy-MC model and BS model;From the analysis of pricing accuracy of different models,the pricing accuracy of pure jump Levy-FFT model and pure jump Levy-MC model is better than that of BS model,and closer to the real market price,compared with the two,the pricing accuracy of the pure jump Levy-MC model is slightly better than that of the pure jum-p Levy-FFT model;From the analysis of NIG process and VG process,the pricing accuracy of NIG-MC model is better than that of VG-MC model,and the pricing accuracy of NIG-FFT mode-1 is better than that of VG-MC model,which is the same as the fitting effect of SSE 50ETF price return rate on NIG process and VG process,and further proves that the pure jump Levy process can better describe the characteristics of the SSE 50ETF market.Finally,from the perspective of pricing accuracy,selects the NIG-MC model with high pricing accuracy and the BS model for co-mparative analysis of hedging,adopts the dynamic hedging method with fixed time point,and sets the time interval of hedging as 5 days and 8 days,it is found that the hedging ratio calculated by the NIG-MC model after hedging is better than the BS model,from the analysis of the entire option trading time period,it is found that the higher the pricing accuracy,the better the hedging effect.