The Pricing And Indexation Of Multi-Asset Exchange Options

Exchange option is composed of two basic assets,which belongs to one of exotic options.When the number of exchange options is expanded to more than two,multi asset exchange optious are formed.In theory,the discussion about this option mainly focuses on the pricing problem in complex situations.In application,besides the options products traded in foreign markets,the pricing formula also makes a contribution to the pricing of convertible bonds.However,when looking at domestic,there is no relevant application research for the lack of complex options products in the market.In order to explore the application prospect of exchange option theory in the Chinese market when there is no relevant product,this paper studies the strategy of making S&P dynamic asset exchange index in the U.S.market.The strategy uses the exchange option pricing formula derived by Margrabe(1973),applies the pricing problem of exchange options to the weight calculation of asset allocation,and weights the delta value of different assets,thus forming a new strategy for determining the weight of asset allocation.Although the strategy is not good in the dynamic allocation of American stock and corporate bonds due to the long-term liquidity bull market of the US stock market,its preparation strategy provides the application background and practical thinking for the application of exchange options in Chinese market.Based on the above research,the paper first explores the application prospect of the above strategies in the stock and corporate bond market in China,and successfully compiles the exchange option index.The strategy is tested back in 2007-2020 by using historical data,and the performance of the strategy is ana-lyzed and studied by the return,volatility and sharp index.The empirical results show that the allocation strategy has 25%cumulative excess return compared with the equal weight allocation strategy.Secondly,the paper uses the pricing formula of multi asset exchange option obtained by Jonson(1987)to expand the number of the underlying assets of the strategy from two to three.The interna-tional gold futures index is added as the third target.The rainbow option index is studied and compiled,and the cumulative excess income of 392%is obtained compared with the equal weight strategy.The strategy has achieved significant excess return in the above two empirical studies,and has higher volatility com-pared with the equal weight strategy,but there is no big gap between the sharp ratio and proves that it has gained higher returns while taking on the greater risks.Finally,in order to explore the performance of the strategy in China stock market,the paper chooses the stock industry index as the target to explore the application.However,the strategy has not gained excess return in the allocation of industry index because of the asset defensive failure caused by the convergence of the trend of the target.The empirical results show that for investors with high risk tolerance and high-income assets,the strategy can follow the target of high-income market through weight change,and has the characteristics of automatic timing,and is an effective long-term asset allocation method.The strategy is more risky than the traditional asset allocation method?and the operating cost is higher,and it has the limitation of market dependence and the number of tar-get assets.However,when selecting assets in many markets with a large trend difference,the strategy has a good application prospect.