Abstract
The SSE 50ETF option is China's first stock index option product launched in 2015. For a number of reasons, the options market can sometimes create arbitrage opportunities. Based on the theory of option parity arbitrage and taking into account the transaction costs, this paper explores effective options arbitrage strategies and practices them. Based on the theory of option parity arbitrage and taking into account the transaction costs, this paper establishes an effective option arbitrage strategy model and puts it into practice. The results show that there are indeed arbitrage opportunities in the market that exceed the risk-free rate of return, but there are not many such opportunities, and there is not much arbitrage space under many opportunities. This is not only the embodiment of high market efficiency, but also the result of taking various transaction costs into full consideration in this paper to ensure the effectiveness of arbitrage.
Highlights
The option first appeared in the United States in the 1970s
As a financial instrument with hedging function in the financial market, option era has developed rapidly since The first option product of China -- SSE 50ETF option was listed on February 9, 2015, which marks the arrival of a new era of hedging in China's securities market
According to the characteristics of China's financial markets, on the basis of the principle of no arbitrage, the law of one price and formula of European option parity, give full consideration to all kinds of transaction costs to ensure the effectiveness of arbitrage strategy, for more than a given threshold and poor option price is lower than the given threshold, specific strategy of long and short arbitrage is given respectively, and discussed based on the dividend and 50 etf of Shanghai 50 index tracking deviation on whether there is a greater arbitrage space
Summary
The option first appeared in the United States in the 1970s. It is a right to buy and sell the underlying asset at a certain time or within a certain period in the future. Qian Shensheng (2016) discussed the application of parity arbitrage of European options in the Chinese market. Jinzhong Wang et al (2018) used parity arbitrage model to explore the arbitrage opportunities and earnings between the two derivative markets of sSE 50 stock index futures and 50ETF options. According to the characteristics of China's financial markets, on the basis of the principle of no arbitrage, the law of one price and formula of European option parity, give full consideration to all kinds of transaction costs to ensure the effectiveness of arbitrage strategy, for more than a given threshold and poor option price is lower than the given threshold, specific strategy of long and short arbitrage is given respectively, and discussed based on the dividend and 50 etf of Shanghai 50 index tracking deviation on whether there is a greater arbitrage space
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