CHINA FINANCIAL RESEARCH NETWORK
2012-06-01 第5卷 第1期
Hong Yuan Securities Co. LtdDepartment of Investment Bank
BeiHang UniversitySchool of Economics and Management
Eric C. Chang
The University of Hong KongSchool of Economics and Finance
Stockholm UniversitySchool of Business
戴晓凤 梁巨方 湖南大学金融与统计学院
Wei FAN Hong Yuan Securities Co. LtdDepartment of Investment Bank
This paper investigates the pricing and hedging of a new volatility derivative in Mainland China, called volatility-linked notes. Firstly, we describe its underlying volatility-historical volatility of SHSCI and its specific clauses, then calibrate the underlying volatility using GARCH(1,1). It finds that the mean-reverting phenomenon of SHSCI volatility exists. Secondly, we propose two pricing model using replicated method and Monte-Carlo simulation, respectively. It works out similar outcomes. Finally, a Delta-hedging scheme of the volatility-linked notes is shown, however, the estimated result is not satisfactory as the absence of more efficient hedging instruments like index future.
Lanfen Liu BeiHang UniversitySchool of Economics and Management
Following the successful experience of USDX, this paper gives a profile of how to design a foreign exchange index for China and elaborates three functions and implications of CNYX in foreign exchange market. This paper also demonstrate the models to get the equilibrium price of CNYX derivatives. CNYX derivatives provide traders and hedgers with a tool for avoiding risk and give a new approach for China’s large foreign reserve to optimize its structure to prevent the devaluation.
Eric C. Chang The University of Hong KongSchool of Economics and Finance
This paper first studies the Chinese warrant market that has been developing since August 2005. Empirical evidence shows that the market prices of warrants are much higher systematically than the Black-Scholes prices with historical volatility. The prices of a warrant and its underlying asset do not support the monotonicity, perfect correlation and option redundancy properties. The cumulated delta-hedged gains for almost all expired warrants are negative. The negative gains are mainly driven by the volatility risk, and the trading values of the warrants for puts and the market risk for calls. The investors are trading some other risks in addition to the underlying risk.
Caihong Xu Stockholm UniversitySchool of Business
Recently, the Shanghai Futures Exchange (SHFE) introduced gold futures trading in China. This paper is the first to study the SHFE gold futures, and to evaluate the futures hedging effectiveness since the introduction. The results show that hedging with gold futures reduces the variance of a hedged gold spot position by about 88% in its first two years of existence. During the second half of 2008, however, when the global financial crisis escalated, the variance reduction dropped to about 70%. Overall, the new Chinese gold futures prove to be attractive and well-needed hedging vehicles for domestic Chinese gold producers, refiners, consumers and investors.
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