The pricing of China stock index options based on monetary policy uncertainty

Abstract

In the field of option pricing, scholars have been exploring the constant settings of volatility and interest rate ever since the Black-Scholes model was put forward. This research introduces a floating interest rate into the local volatility model, analyzes the model’s pricing effects, and compares them from the aspects of an in-sample pricing error and out-of-sample pricing error respectively using data of CSI (China Securities Index) SH-SZ (Shanghai-Shenzhen) 300 stock index options. The empirical results show that the Surface Stochastic Volatility Inspire model is better than the Stochastic Volatility Inspire model.