The Influence Of Transaction Cost On Option Pricing And Hedging

The option transaction fee is a fee payable by an investor to trade an option contract.The level of option transaction fee directly affects the ability of the option market to reflect the new information and the arbitrage space of the market,is the key factor affecting the basic function of the option.If the transaction fee is too high,it will increases the transaction cost of the investor,sometimes it will inhibit the full play of the option market function,so that the option cannot reflect the external information sensitively.The transaction costs discussed in this article include the transaction cost when trading options,and the transaction cost of the underlying asset of the option.Combining with the actual situation of 50ETF option in China,this paper studies the influence of these two on option pricing and hedging.The research of this paper is mainly composed of three parts,namely the theoretical part,the pricing part and the hedging part.In the theoretical part,this paper explains the development of options at China and abroad with the charging of options at China and abroad.In the study of the effect of option transaction cost on option pricing,introducing the option pricing formula without transaction cost and with the transaction cost respectively.Then,the formula is used to calculate the 60 options selected in 2018,and their theoretical price is calculated,and finally the calculated theoretical price is compared with the actual closing price.It is found that when the transaction cost of the asset of the option is zero,the average error between the theoretical price and the actual closing price calculated by the pricing formula with transaction cost is the smallest.In the hedging part,this paper expounds how to establish Delta neutral hedging strategy and Delta-gamma neutral hedging strategy,and adopting these two strategies combined with 50ETF actual data and 50ETF option actual data to compare and analyze the hedging effect of three situation,which are options without considering transaction costs,taking into account only the transaction costs of the option itself,and considering all transaction costs(option fees and transaction costs of the assets of the option).In evaluating the effect of hedging,this paper is measured by the HE model.In this paper,the effect of deep virtual value option and real value option in Delta neutral hedging strategy is compared and analyzed under three kinds of cost situation.It is found that the hedging effect of deep virtual option is better than that of real option,and the effect of transaction cost on deep virtual option is greater.Based on the calculation and analysis results of this paper,this paper puts forward three suggestions:Firstly,the use of virtual underlying asset in order to reduce the transaction cost of option underlying assets on the impact of option pricing.Secondly,optimizing the transaction fee of the option itself.Thirdly,enriching the Chinese option VaRiety,lowering the requirement of option participant.