An Empirical Analysis On Option Pricing Of Gold Spot Market In China

Gold spot market in China has become one of the biggest gold markets all over the world.The derivatives of gold are more and more popular.Options,which are very common in developed financial markets,are still new to Chinese investors.Even though there is no flooring trade market of gold options in China,but as one of non-linear risk management tools,options are important to risk managers and hedgers.In asset management,banks and many other structured products issuers,used options as investments.So,option pricing of gold spot market in China is very critical.And more and more researchers in school and in financial institutes do a lot in option pricing.The paper introduces the development process of Chinese gold market and reviews researches in China and aboard.Then,we use spot gold data of Shanghai Gold Exchange to study the characteristics of price and rate of return of physical gold.The result indicated that the gold index in China is not distributed normally and volatility is clustered.Also,we focus on the volatility,which is the most important factor of option pricing.We establish GARCH model to study the volatility and estimate the volatility in different term structure.We also find that the volatility in Chinese gold spot market does not have leverage effect and have different features from loco gold.In the end,we use three methods to price the options of gold spot market in China.Then,we calculate the Greeks to get the sensitivity of option pricing and give a help to option risk management.