Research On 50EFT Options Hedging Strategy Based On Delta Neutral

On February 9,2015,the Shanghai Stock Exchange formally started the public trading of Shanghai 50 ETF options contract(securities code: 510050),approved by the China Securities Regulatory Commission(CSRC).As the first option product of our country,the formal listing of Shanghai 50 ETF options opened the "option age" of our financial market.As an important financial derivative,the listing of options not only fills the gap in China's securities trading products,but also improves its financial market system and what's more,it provides new trading ideas and strategies for the vast majority of individuals and institutional investors.Although ETF options have been developed for a long time in Europe and other developed countries,the 50 ETF options,as China first internal standardized options contract was issued much later.The academic circles can't do enough related empirical research of it due to the lack of sufficient data samples.In this context,we will use the 50 ETF options to hedge its underlying assets and make an empirical analysis and evaluation of the hedging effectiveness and efficiency of the Delta hedging strategy by using the real data of Shanghai 50 ETF options and the Delta neutral hedging strategy and we will also discuss the advantages and disadvantages of the options contrasts and stock index futures in the cost of hedging based on the realistic background of the stock market volatility of China in 2015.There are three parts in the paper.They are the theoretical part,the dynamic simulation and effectiveness verification of Delta hedging strategy and the hedging cost analysis of options and futures.(1)In the theoretical part,the paper firstly summarizes the basic theory of options and hedging,then reviews the related theory of the principle of pricing formula of options and Delta hedging strategy and finally describes the status quo of 50 ETF options and the risk to investors.(2)The part of dynamic simulation and effectiveness verification of Delta hedging strategy includes research contribution and some innovative parts of the paper.There are two innovations.Firstly,we use the Shanghai 50 ETF options to hedge its underlying assets by using the Delta hedging strategy,the Delta Gamma-Vega hedging strategy and Delta-Gamma hedging strategy and set the contrast group to evaluate the hedging effect by operating with different hedging frequencies.Secondly,in the Delta Gamma-Vega hedging strategy,the paper constructs a dynamic hedging simulation based on the previous static hedging simulation and analyzes the fluctuation of portfolio value after a period of continuous hedging.(3)The part of the hedging cost analysis of options and futures also includes the research contribution and some innovative parts of the paper.There are also two innovations in this part.Firstly,we make empirical analysis on the Shanghai 50 ETF and Shanghai 50 stock index futures by using ARCH and GARCH model and verify that there exits the long-run equilibrium relationship between them which illustrates the SSE 50 index futures can hedge the Shanghai 50 ETF.Secondly,in the context of actual background that larger futures basis has led hedgers to face excessive basis risk when using future hedging due to the large fluctuation in the stock market in 2015.this part compares the advantages and disadvantages of transaction costs and hedging costs of options with futures' which has realistic significance.Through the research,the paper constructs the Delta hedging strategy and uses the real transaction data to carry out hedging operations.From the simulation results,each strategy reduces the volatility of the portfolio and acts as a hedge which means the Delta hedging strategy is also effective in our market.It provides a useful reference for the investor to build hedging strategies and also promotes the research of the option hedging strategy in China which has a certain theoretical and practical significance.