Pricing of Shanghai stock exchange 50 ETF options based on different volatility models

Qingchun Wu, Xiaoping Kuang, Binhong Wu and Xuhong Xu

PLOS ONE, 2023, vol. 18, issue 12, 1-17

Abstract: On March 15, 2022, the volume of trade of the Shanghai Stock Exchange (SSE) 50 ETF option contracts and the CSI 300 ETF option contracts exceeded 10 million for the first time, of which 5,707,400 50 ETF options were traded, and SSE 50 ETF options, as the main force, has become one of the most active ETF option varieties in the world after seven years of vigorous development. The SSE 50 ETF options receive highlights in risk-free arbitrage, hedging, risk management and other aspects. In order to give full play to the function of the SSE 50 ETF options, it is necessary to conduct studies on their pricing. This paper adopts the traditional classical models for pricing European-style options, the BSM model and the volatility model, to price call options and put options of the SSE ETF, and meanwhile analyzes the volatility of the SSE 50 ETF. The empirical results suggest that (1) the volatility of SSE 50 ETF has a weak leverage effect or no leverage effect, which converges with the existence of the inverse leverage effect of the SSE index; (2) the BSM model will underestimate the price of SSE 50 ETF options and is only ideal for pricing in-the-money (ITM) options; while out-of-the-money (OTM) options are highly influenced by time value and therefore cannot be accurately priced.

Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:plo:pone00:0288266

DOI: 10.1371/journal.pone.0288266

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