The implied volatility smirk in the Chinese equity options market
Sebastian A. Gehricke,
Jin E. Zhang and
Pacific-Basin Finance Journal, 2021, vol. 69, issue C
This paper analyzes the implied volatility (IV) curve of the SSE 50 ETF options, the first equity options market in mainland China. We quantify the IV curve and find it exhibits a right-skewed smirk shape, which is different to the left-skewed IV smirk shape shown in the international options markets and offshore options based on ETFs tracking large Chinese equities. Consistent with the right-skewed smirk shape, a delta-neutral option writing strategy generates higher profits from writing call options than put options. Finally, we show that the level and slope factors of the IV curve are related to investor sentiment.
Keywords: SSE 50 ETF options; Implied volatility smirk; Option trading strategy; Investor sentiment (search for similar items in EconPapers)
JEL-codes: G13 G14 G15 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:69:y:2021:i:c:s0927538x21001311
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