A Study On The Impact Of CSI 300 Stock Index Options On The Volatility Of The Underlying Index

Stock index option is one of the financial innovative products with the best liquidity and the most effective risk management in the global derivatives market.On December 23,2019,China’s first stock index option product was officially listed for trading.The listing of stock index option not only enriches the types of derivatives,but also improves the structure of the financial market.However,the launch of new products often leads to market manipulation and sharp rise and fall,such as speculation in the warrant market and the plunge in the spot market after the listing of Shanghai and Shenzhen 300 stock index futures.Especially under the background of COVID-19 in 2020,China’s economy has been greatly affected,and the uncertainty of stock market has increased.Market volatility is not only the core of financial practitioners’ attention,but also the eternal topic of scholars’ research.Therefore,it is worth paying attention to how the stock index option will impact the volatility of the stock index in China’s financial market with low maturity and great uncertainty,and how the function of the stock index option will evolve in the COVID-19 epidemic.Firstly,thesis makes an empirical analysis from a static point of view,and uses the GARCH model to analyz the impact of option listing on the volatility of CSI 300 index.The daily closing price of CSI 300 index from January 1,2018 to November10,2021 is selected as the research sample.In order to better identify the volatility changes caused by the listing of options,the yield of SSE 500 index is taken as the proxy variable of market economic situation.In addition,the research period is divided into two parts by setting dummy variables with option listing as the starting point.The GARCH model is constructed by taking the market economic situation as the exogenous variable of the mean equation and dummy variable as the exogenous variable of the variance equation.In this way,we can estimate the dummy variable coefficient after excluding the market economic environment factors,and accurately analyze the impact of stock index option listing on index volatility.The results show that option listing can significantly increase the volatility of the underlying stock index,but the impact is limited.Secondly,thesis makes an empirical analysis from the dynamic perspective,and uses the recursive regression model to analyze the dynamic impact of options trading on the volatility of the CSI 300 index,as well as the evolution of the option function of the CSI 300 index during the epidemic.We select the data of daily trading volume and trading amount of options and stock indexes of CSI 300 stock index options and spot from December 23,2019 to March 7,2022 are selected as the research object.In order to better identify the dynamic impact of stock index option trading on the underlying volatility,the ratio of stock index option to spot trading volume is selected as the option activity index,and the standard deviation of 15 day index return is selected as the index of stock index volatility.We use the recursive regression model to estimate the sequence diagram of the trading activity coefficient of stock index options to intuitively analyze the magnitude and direction of the impact.The research results show that the trading activity of CSI 300 stock index option has been rising since its listing.At the initial stage of option listing,the active trading of CSI 300 stock index options significantly increased the volatility of CSI300 stock index,and the impact was drastic.After the COVID-19 epidemic broke out,the activity coefficient of options trading changed from positive to negative,that is,in extreme events,options played the role of "stabilizer",slowing down the fluctuation of the stock market.And then,the effect of active option trading on reducing market volatility weakened and converged to 0.The research conclusion expands the dynamic perspective,and provides dynamic evidence for the function of options.Some suggestions are put forward,such as increasing the government’s support for the diversification of option products,improving investors’ ability to deal with extreme events,improving internal trading mechanism and external risk supervision,so as to promote the healthy development of financial market.