Empirical Comparison Of Option Pricing Models Based On Shangzheng 50 ETF Options

The SSE 50 ETF option was launched on February 9,2015, which is the first stock index option in Chinese market. This signifies that Chinese market has entered a new era of option.Option is an effective financial derivatives which can be used for risk measurement, risk management and reflecting market information. It also contributes to enriching financial products, perfecting market structure and raising capital mobility.However, compared with substantial theories of option and empirical research achievements abroad, there is lack of theoretical study and empirical work of option in China. Meanwhile, many market practitioners simply use B-S model to price options.B-S model, which was proposed by Black and Scholes in 1973, is widely used in theoretical study and empirical work all over the world, but the model is not perfect. As a great amount of empirical work has been found out, there are some over idealized assumptions, which result in some biases of B-S model price and market price as option’s moneyness and time to maturity changes.The study aims to look for the fittest option pricing model by making an empirical comparison of B-S model, AHBS model, GARCH model and SV model.The empirical study is based on SSE 50ETF options. Firstly, we filter the option data and nearly 9,000 pieces of option data in year 2015 are selected to ensure the validity of the sample. Then the option data are divided into some categories according to option’s moneyness and time to maturity. Next the four option pricing models are investigated from two perspectives including in-sample performance and out-of sample performance by using four measures including MAE, MPE, MAPE and MSE. Finally, the study finds that SV model shows the best performance and is the fittest model to Chinese option market, both in the in-sample and out-of-sample. The Next is AHBS model and B-S model, while GARCH model performs worst.