Patterns of 50 ETF Options Implied Volatility in China: On Implied Volatility Functions

The aim of this study is to examine the volatility smile based on European options Shanghai stock exchange 50 ETF. data gives evidence existence a well-known U-shaped implied for SSE ETF market in China. For those near-month options, smirk also observed. And remains high short maturity and decreases as increases. patterns indicate that in-the-money out-of-the-money are more expensive relative at-the-money options. This makes use pricing out-of- or questionable. In order investigate volatility, regression-based functions model considered employed method simple easy apply practice. Several classical investigated paper find whether some kind could lead accurate values. potential determinants degree moneyness days left expiration. empirical work has been expressed by means ordinary least squares framework. As shows, when valuing results using mixed. far-month performs better than other option valuation. can improve valuation accuracy deep However, no particular function very well all level time maturity.