Index Futures Trading Risk Management Based on Index Options

doi:10.13766/j.bhsk.1008-2204.2017.0111

Abstract

Abstract:

In financial futures markets, the deviation between the price of index futures and underlying spot index will give the investors the opportunities of index spot futures arbitrage. This paper, viewing the index futures and basis as the contingent claims of index spot, compares the four basic types of index options trading, uses the prices of the at the money options to give the size of violation of the no arbitrage boundary, and proposes the method of risk management using the index options. We present the empirical evidence based on the China Securities Index (CSI) 300 index. The results show that from June, 2015, the basis is extremely large due to lack of arbitrage mechanism. Therefore, the importance is emphasized of launching the index options to complete the products of financial markets.

Key words: index option, index futures, basis, index arbitrage, option pricing, price risk management, products of financial markets

CLC Number:

F832.5

REN Ruoen, WANG Chao. Index Futures Trading Risk Management Based on Index Options[J]. JOURNAL OF BEIJING UNIVERSITY OF AERONAUTICS AND A, 2018, 31(2): 75-83.

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