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Futures-Spot Arbitrage of Stock Index Futures in China: Empirical Study on Arbitrage Strategy
Umeå University, Faculty of Social Sciences, Umeå School of Business.
Umeå University, Faculty of Social Sciences, Umeå School of Business.
2010 (English)Independent thesis Advanced level (degree of Master (One Year)), 15 credits / 22,5 HE creditsStudent thesis
Abstract [en]

The main purpose of this thesis is to investigate what is the optimal futures-spot arbitrage strategy for China‘s stock index futures investment. Specifically, Index replication method and no-arbitrage pricing model are examined. We compare the different combinations of ETFs portfolio in mainland China with W.I.S.E-CSI 300 ETF in Hong Kong in three aspects including liquidity level, correlation of ETFs with underlying index, and tracking error of the replication methods. Then, we add several new parameters into interval pricing model to obtain a more accurate no-arbitrage band. As a result, we found that the portfolio of SSE 50 ETF, SZSE 100 ETF, and SSE Bonus ETF could provide the best tracking effect of CSI 300 Index, with different weight as 0.369, 0.403, and 0.19 in turn separately. Furthermore, the new modified pricing model could find out more arbitrage opportunities than interval pricing model especially for reverse cash-and-carry arbitrage. On the whole, the optimal arbitrage strategy for investment on CSI 300 Index futures consist of two steps, implement ETFs portfolio replicate CSI 300 Index and using new modified pricing model to discover and define arbitrage opportunities then to apply futures-spot arbitrage. At the end of thesis, we also give a small case study to illustrate how to exercise the arbitrage strategy in realistic situation.

Place, publisher, year, edition, pages
2010. , 53 p.
Keyword [en]
Stock Index Futures Arbitrage
National Category
Business Administration
URN: urn:nbn:se:umu:diva-34919OAI: diva2:326894
Social and Behavioural Science, Law
Available from: 2010-06-28 Created: 2010-06-24 Last updated: 2010-06-28Bibliographically approved

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