TITLE:
Research on Pricing of Shanghai 50ETF Options Based on Fractal B-S Model and GARCH Model
AUTHORS:
Wanting Hu
KEYWORDS:
Fractal Brownian Motion, GARCH Model, SSE 50ETF Options, Volatility Prediction, Improved B-S European Option Pricing
JOURNAL NAME:
Modern Economy,
Vol.11 No.2,
February
20,
2020
ABSTRACT: A reasonable option trading price will have certain
guiding significance for option traders. Fractal B-S model and GARCH model are
common pricing methods. This article explores which pricing method is more
reasonable based on SSE 50ETF options. Due to the spikes and thick tails,
conditional heteroscedasticity, and fractal characteristics of the SSE 50ETF
option yield data, this paper performs stationary test, autocorrelation and
partial autocorrelation test, ARCH test, and Hurst test on the daily sample
rate series of the target sample. The characteristics of the yield sequence are
used to construct a GARCH model and predict the daily rate of volatility. Finally,
the volatility predicted by the GARCH model is used as the parameter value in
the fractal Brownian motion option pricing method to realize the option
pricing. At the same time, this paper calculates the pricing results of the BS
option pricing method based on historical volatility, and compares the two
options pricing results with the closing price of the option transaction price.
The results show that the prediction of the Shanghai Securities 50ETF option
pricing method based on the GARCH fractal Brownian motion model. The accuracy
is significantly higher than the standard BS option pricing method.