Which volatility model for option valuation in China? Empirical evidence from SSE 50 ETF options

Zhuo Huang (), Chen Tong and Tianyi Wang ()

Applied Economics, 2020, vol. 52, issue 17, 1866-1880

Abstract: In early 2015, China launched its first exchange-traded option, the Shanghai Stock Exchange (SSE) 50 ETF option, to meet the increasing demand for financial derivatives. In this article, we provide an intensive empirical investigation of popular discrete-time volatility models in terms of their pricing performance when applied to SSE 50 ETF options. We find that the newly developed models with realized measures significantly outperform conventional GARCH-type models based on daily returns only. In contrast with the U.S. market, our empirical results suggest that the leverage effect is very weak in the Chinese option market.

Date: 2020
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DOI: 10.1080/00036846.2019.1679348

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