The Price Relationships Between The Underlying Asset And Its Option:Evidence From SSE 50ETF

Since the beginning of this century,China's securities market has developed rapidly,and the total market value has leapt to the second place in the world,but there are still problems.In order to accelerate the pace of enriching the products in the capital market and push China's capital market to a new level,on February 9,2015,the SSE 50 ETF option contract was approved for listing and opened the first page of the exchange-trade option market in mainland China.As the first exchange traded fund(ETF)option contract,it attracted wide attention both from academia and industry.Since the listing,the market has operated steadily,the scale has grown constantly,and the trading order is healthy.Although the option does play an important role in financial development,it still has many problems worthy of further study.In the developed capital market,market participants are active and market liquidity is high,but there is still an abnormal phenomenon in the change of option prices,which does not meet the expectations of the classical option pricing theory.The movement of the option price violates the theory,that is call price and the underlying stock always moving in the opposite direction;moreover,put price and the underlying stock always moving in the same direction.I am curious about whether the price of the SSE 50 ETF option faces the similar problems.This paper uses the high-frequency trading data of SSE 50 ETF and its options to identify the relationship between the prices of SSE 50 ETF and its option based on different intervals: tickby-tick,1 minute,5 minutes,15 minutes,30 minutes and 60 minutes.The empirical results show that the violations in the US,Europe,and South Korea option markets also appear in the SSE 50 ETF options in China.First,from February 9,2015 to July 29,2016,the violation rate of call prices moving opposite to the underlying prices is at least 11.12%;the violation rate of put prices and the underlying prices moving in the same direction is at least 10.30%;the occurrence of violations is more widespread.Second,the violation of the underlying asset price changes but call option unchanged is approximately 18.18%;the put option is approximately 18.20%.In addition,the violation rate of over adjusting option prices increases with time intervals,up to 11.15%.The total violation occurrence of in-the-money options is higher than that of other moneyness,which is different from other markets.It is clearly that the one-dimensional diffusion model has limitations in explaining the changes in China's option prices.Finally,this paper constructs a reasonable market microstructure model to interpret the violation occurrences.The bid-ask spread,volume,maturity,moneyness and option type all impose a statistically significant influence on violations.