Research On The Short-term Characteristics Of Implied Volatility Of SS50ETF Call Options

The Black-Scholes-Merton option pricing model has greatly promoted the rapid development of financial derivatives market.However,after the outbreak of the US stock market crisis in 1987,the emergence of the "volatility smile" phenomenon in option market greatly challenged the effectiveness of Delta hedging based on the BSM model,and thus a series of local volatility and stochastic volatility models have been developed one after another.More importantly,in practice,practical rules such as the daily mark-to-market mechanism and early liquidation of option position indicate that investors are more concerned about the daily profit and loss or the daily volatility in option trading,rather than the terminal payment when the contract expires.In this regard,the minimum variance Delta hedging aiming at minimizing the instantaneous profit and loss or the variance of hedging portfolios is widely popular,but related studies have shown that this method is not consistently better than other hedging strategies used in practice.Under this background,how to better characterize the short-term characteristics of option volatility under the restrict of limited options contracts available for trading,and then improve the effectiveness of Delta hedging has important implications for both academic and practice.On the basis of introducing research background and reviewing related literature,this thesis firstly discusses the problem of generating implied volatility curves based on a local volatility model with a specific setting of quadratic local volatility function,and then uses the market data of the Shanghai 50 ETF call option contracts from September1,2017 to November 30,2017 to construct an implied volatility curve with the remaining expiration time fixed at one month and to analyze the characteristics including the level,slope and curvature of the short-term implied volatility.Secondly,by introducing the skew stickness ratio of short-term implied volatility,the classic SABR model is extended and the effectiveness of Delta hedging based on the extended model is investigated by using the implied volatility curve with fixed maturity of one month.The results show that: firstly,under the setting of the quadratic local volatility function,by using the characteristics of the implied volatility curves of available option contracts with different maturities and the lognormal estimation method to calibrate theparameters in the local volatility function,the implied volatility curve can be obtained;secondly,by separately constructing the implied volatility curve with the remaining expiration time fixed at one month and six months,the comparison of the characteristics of two curves shows that the short-term implied volatility from the one month forward option can be used as a reasonable estimation of the instantaneous volatility of options;thirdly,compared with BSM model and the classic SABR model,the extended SABR model with the parameter of skew stickness ration of short-term implied volatility can significantly improve the performance of Delta hedging.