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The Chinese equity index options market

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Listed:
  • Yue, Tian
  • Zhang, Jin E.
  • Tan, Eric K.M.

Abstract

Using Bakshi et al. (2000), and Bakshi and Kapadia's (2003) methodology, this paper studies the Chinese equity index options market that has been developing since 2015. Empirical evidence shows that the market price of call (put) option is generally lower (higher) than their Black-Scholes prices with historical volatility. The prices of the options do not support the one-dimensional diffusion model properties. We find 61.79% (63.25%) of delta-hedged gains in call (put) options to be negative. The analysis of the non-zero delta-hedged gain suggests that the investors are mainly trading on additional volatility risk in the options market in China.

Suggested Citation

  • Yue, Tian & Zhang, Jin E. & Tan, Eric K.M., 2020. "The Chinese equity index options market," Emerging Markets Review, Elsevier, vol. 45(C).
    • Handle: RePEc:eee:ememar:v:45:y:2020:i:c:s1566014119302341
    DOI: 10.1016/j.ememar.2020.100742
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    Cited by:

    1. Yue, Tian & Li, Tianjiao & Ruan, Xinfeng, 2023. "Does short-term momentum exist in China?," Pacific-Basin Finance Journal, Elsevier, vol. 77(C).
    2. Lockwood, Jimmy & Lockwood, Larry & Miao, Hong & Ramchander, Sanjay & Yang, Dongxiao, 2022. "The information content of ETF options," Global Finance Journal, Elsevier, vol. 53(C).
    3. Yue, Tian & Huang, Jiexiang & Ruan, Xinfeng, 2024. "Comomentum in China: Inferring arbitrage activity from return correlation," Pacific-Basin Finance Journal, Elsevier, vol. 85(C).
    4. Yue, Tian & Gehricke, Sebastian A. & Zhang, Jin E. & Pan, Zheyao, 2021. "The implied volatility smirk in the Chinese equity options market," Pacific-Basin Finance Journal, Elsevier, vol. 69(C).
    5. Yeguang Chi & Wenyan Hao & Yifei Zhang, 2022. "Volatility model applications in China's SSE50 options market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(9), pages 1704-1720, September.
    6. Yue, Tian & Ruan, Xinfeng & Gehricke, Sebastian & Zhang, Jin E., 2023. "The volatility index and volatility risk premium in China," The Quarterly Review of Economics and Finance, Elsevier, vol. 91(C), pages 40-55.

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    More about this item

    Keywords

    Chinese equity index option; One-dimensional diffusion model; Delta-hedged gains;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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