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| Research on China’s Option Market: Based on Two Empirical Differences about Option-Implied Variances between China and US |
| CONG Mingshu
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| Guanghua School of Management, Peking University |
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Abstract As the starting point of studying China’s option market, this paper compares two empirical differences about option-implied variances between China and US. The risk-return trade-off requires a positive relationship between option-implied variances and future equity premiums. Such a relation is validated in the US market but is violated in China. Also, modern option pricing theories predict higher option-implied variances than realized variances. Such an effect is weaker in China than in US. These two findings suggest some directions for future research on China’s option market.
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Published: 22 January 2019
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