The Measurement And Application Of Knight Uncertainty In Options Market

With the outbreak of the global financial crisis in 2008,the world economy fluctuated violently,which made Knight’s uncertainty attract the attention of the financial circle again.As an important.risk management tool in the financial market,option pricing has become one of the core topics concerned by the theoretical circles and the industry.In 1973,Black and Scholes proposed the classic Black-Scholes option pricing model.Subsequently,many scholars revised the assumptions on the basis of it,and proposed many new models,such as stochastic interest rate model,jump model,stochastic volatility model,etc.These models are all based on the only reference probability measure.However,the existence of Knight’s uncertainty will cause the failure of the risk-neutral option pricing model represented by the Black-Scholes model.In this paper,based on the risk-neutral pricing model,starting from the nature of riskneutral probability measurement,this paper proposes a measurement method for Knight uncertainty in the option market,and gives a financial explanation of the measurement method from the perspective of no-arbitrage,which is the main innovation of this paper.Then,this paper conducts empirical research on the SSE 50ETF option market as an example,and finds that Knight uncertainty exists in the SSE 50ETF option market.Then,following the CBOE’s idea of adjusting the term structure when calculating volatility,this paper constructs the measurement index of Knight’s uncertainty in the next 30 days of each trading day,and calculates the SSE 50ETF option market’s next 30 days in the future.days of Knight uncertainty.This paper draws lessons from the nonlinear expectation theory,fully considers the influence of Knight’s uncertainty in the option market,promotes the classic Black-Scholes option pricing model,and obtains the option pricing formula with Knight’s uncertainty.Then select the SSE 50ETF option again for empirical analysis,and give the parameter estimation method of the option pricing formula with Knight’s uncertainty,thus providing theoretical and empirical support for solving the option pricing problem with Knight’s uncertainty.