Stationary-process-based Investment Strategies For China And Us Index Markets

In foreign financial markets,mature and comprehensive studies have been conducted for option pricing,the lead-lag relationship between options and other financial products,and options trading strategies.But in the Chinese market,research on options is still scarce and rudimentary: it mostly applies existing pricing models and trading strategies in foreign markets.Because of the uniqueness of China’s financial markets,it is insufficient to simply apply the conclusions obtained from overseas mature financial markets,for the goal of formulating a theoretical framework applicable to the options market with Chinese characteristics.Many studies have shown that,under the premise of the market effectiveness hypothesis,statistical arbitrage strategies can be still profitable.Postulating on this premise,we construct option statistics arbitrage strategies,which can make real profits for two distinct financial markets of the United States and China,respectively.Many studies have shown that,in the US options markets,the Black-Scholes option pricing method,based on the belief in the market effectiveness hypothesis,ignores the fact,observed in the market,that > > 0 holds in the short term.This makes the US options markets have the room for statistical arbitrage.In this paper,based on the stationary selling-put-option statistical arbitrage strategy,we use the spot price increasing or the option price decreasing as indicators of position shifting,and propose stationary option statistical arbitrage strategies with unlimited number of exchange positions.These strategies can further utilize changes in market conditions to discover more room for profit,and increase the income of the based stationary put option statistical arbitrage strategies.Through the strategy backtesting results of the three major US index options markets,QQQ,DIA,and SPY,we find that our proposed strategy can indeed effectively improve the annualized returns of original strategies,regardless of being under the Black-Scholes option pricing model or real market prices.To further enhance earnings while avoiding increased volatility,in this paper,we propose the untraditional volatility Bollinger-Bands indicator as a measure to gauge the trend of the spot market.The backtesting results show that,without changing the fact of selling put options,this indicator can further enhance the strategies by reducing the volatility of returns and increasing annualized returns.Because of the obvious differences between the Chinese and US markets,we cannot use the effective stationary selling-put-option statistical arbitrage strategies in the US markets,to obtain satisfactory returns in the Chinese markets.To establish effective option statistical arbitrage strategies in the Chinese market,based on the fact that there is a spread between Chinese 50 ETF parity call options and put options,this paper first establish a position shifting strategy based on the Call-Put spread identity,and prove that in theory the strategy is still a pure arbitrage strategy.Through empirical verification,we confirm effectiveness of the Call-Put spread arbitrage strategy in the Chinese market,but the strategy itself has little room for profit.Then,we prove the stationary relationship between call and put options prices,and construct stationary option statistical arbitrage strategies based on the Call-Put spread by removing the spot transactions.The statistical arbitrage strategy,whose position shift is based on the reverse change of the Call-Put spread,can achieve higher returns,but the strategic returns are too volatile to meet the needs of investors.We also use the volatility Bollinger-Band to enhance the strategies.The real market backtest shows that the enhanced strategies can indeed avoid the drawdown areas and increase returns the originals are susceptible to.In order to investigate study the linkage relationships between the Chinese financial spot market and other financial products,and explain the reasons for the existence of pure arbitrage and statistical arbitrage in the Chinese market,we first study the linear and nonparametric lead-lag relationships among four SSE 50 index markets – the index futures,50 ETF spot,call options and put options markets.From the test results,we find that on different frequencies of data,there are significant lead-lag relationships among the four markets,but of various strengths.The existence of such relationships implies the mutual dependency of price movements of three markets.Meanwhile,we find that the lead-lag relationships between the couple markets change with time.So we focus on the dynamic lead-lag relationship among the four markets,and use the thermal optimal path(TOP)method on it,and analyze the results statistically.In order to make full use of the lead-lag relationships among the markets to establish statistical arbitrage strategies,we also make a attempt to establish the stationary statistical arbitrage strategy.Specifically,we use the indicators, and ,to build an effective and feasible one for the futures and spot markets.