Empirical analysis of SH50ETF and SH50ETF option prices under regime-switching jump-diffusion models

Miao Han, Xuefeng Song, Wei Wang and Shengwu Zhou

Communications in Statistics - Theory and Methods, 2021, vol. 50, issue 9, 2170-2187

Abstract: In this paper, we use extensive empirical data sets from Shanghai 50ETF (SH50ETF) and SH50ETF options markets in China to study how regime-switching jump-diffusion models improve goodness of fit and option pricing performance. Firstly, the model parameters are estimated by using maximum likelihood estimation and the numerical analysis indicates that the regime-switching jump-diffusion models outperform a range of other models. Secondly, the analytical option pricing formulae are obtained via the fast Fourier transform and the empirical results using the proposed option pricing formulae are presented. Finally, we find that the calculated option prices are fairly consistent with the actual market prices.

Date: 2021
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DOI: 10.1080/03610926.2019.1662045

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