Empirical Study On American Futures Option Based On The Least Squares Monte Carlo Simulation

As China is a huge country in production and consumption of sugar,the price fluctuation of sugar brings about quite amount of risks for production and consumption enterprises.In order to manage the risks better,Zhengzhou Commodity Exchange launched Sugar Futures Options on April 19th,2017.With the rapid development of options market in China,options play an increasingly important role in the stability of futures and spot markets,so it is necessary to study the options,in which option pricing is the most important part,so it is very important to use a reasonable model for accurate pricing.In this paper,we simulate the price of the sugar options by using the least-square Monte Carlo.Firstly,the normal test of the price yield sequence of sugar futures was carried out.Verifying the sugar future volatility is biased through the correlation and partial correlation,then using ADF tests the sequence of the sugar futures yield.Then testing the ARCH effect of the sugar futures through the application of Lagrange multiplier test,we can use the GARCH model to describe the volatility of its yield,by using the GARCH(1,1)model and the GJR-GARCH(1,1)model we can obtain the estimation sequence of future volatility,and apply to the least-square Monte Carlo Method,finally,simulating the prices of different options at different time,then measuring the effect in the simulation pricing of each option by using the error statistics of RMSRE and AARE.The results show that the effect of using the GJR-GARCH(1,1)model was better than using the GARCH(1,1)model,and as near to the last trading day,the pricing of option was more accurate,and the error was reduced from 28 yuan each ton to less than 5 yuan each ton,and the RMSRE reduced from 0.0787 to 0.0613 and the AARE down from 0.0485 to 0.0341.So it also fully shows that the effect of the method of simulating price was very obvious.