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.
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