Volatility-based strategy on Chinese equity index ETF options

ArXiv ID: 2403.00474 “View on arXiv”

Authors: Unknown

Abstract

This study examines the performance of a volatility-based strategy using Chinese equity index ETF options. Initially successful, the strategy’s effectiveness waned post-2018. By integrating GARCH models for volatility forecasting, the strategy’s positions and exposures are dynamically adjusted. The results indicate that such an approach can enhance returns in volatile markets, suggesting potential for refined trading strategies in China’s evolving derivatives landscape. The research underscores the importance of adaptive strategies in capturing market opportunities amidst changing trading dynamics.

Keywords: Volatility Strategy, GARCH Models, ETF Options, Dynamic Hedging, Chinese Market, Options

Complexity vs Empirical Score

• Math Complexity: 7.0/10
• Empirical Rigor: 8.0/10
• Quadrant: Holy Grail
• Why: The paper employs advanced econometric models (GARCH) and option pricing theory (Black-Scholes PDE), indicating high mathematical complexity, while it details specific ETF options, trading logic, and appears data-driven with performance results and market data citations.

  flowchart TD
    A["Research Goal:<br>Assess volatility-based strategies<br>on Chinese equity index ETF options"] --> B["Data Collection & Prep"]
    B --> C["Strategy Simulation<br>Initial Position Sizing"]
    B --> D["GARCH Volatility Forecasting<br>for Dynamic Adjustments"]
    C --> E["Compute Returns &<br>Performance Metrics"]
    D --> C
    E --> F{"Analyze Results:<br>Pre- vs. Post-2018"}
    F --> G["Key Findings:<br>1. Strategy effectiveness waned post-2018<br>2. GARCH integration enhances returns<br>3. Adaptive strategies vital for<br>China's derivatives market"]