Abstract
ABSTRACTThis article constructs China VIX with ETFs option data from SSE, HKEx, and CBOE, and investigates the corresponding volatility premiums and volatility term structures. We find that China’s volatility premiums exist in all the three markets with a specific pattern during and after the market crash, and they are highly similar and correlated. This pattern shows that volatility premiums are significantly negative during market crash and quickly rise to a large positive number after the crash, and then slowly decay until next crisis. Moreover, it suggests that investors should short volatility after market collapse rather than long it like most market participants did in the past. Despite the three volatility term structures show that implied volatilities generally decrease with the increasing of terms and rise sharply near the maturity dates, there is no such obvious pattern in the volatility term structure of SSE 50 ETF options due to the extremely imperfection of China’s option market.
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