AS we known, Chinese future markets' Trade volume is the second biggest in the world in 2009. The market is getting more important in assets allocation cross the world.
However, there are some problems we must be clear. In order to "control the market risk by the regulars designed by the government", Chinese future contracts is limited move such as 5% daily, the margin is also swithed as time get close to the settlement date. one more risk is holidays not matched cross the markets, such as long holidays for "national days" / " lunar new year" and " christmas ".
shanghai copper can be delievered in LME, Also LME in ShangHai. If we assume the exchange rate, fees etc, as an constant, How can we design a option in consider of cross market correlation( sometimes missing simultaneous trading time ) and no arbitrage conditions.
---------- Post added at 09:24 AM ---------- Previous post was at 08:30 AM ----------
thanks for Professor Darrel Duffie 's answer:
One approach that I like is the Wishart covariance model. See for example Da Fonseca, Grasselli, and Tebaldi. Just google those names.
Good luck with your research!
Darrell
However, there are some problems we must be clear. In order to "control the market risk by the regulars designed by the government", Chinese future contracts is limited move such as 5% daily, the margin is also swithed as time get close to the settlement date. one more risk is holidays not matched cross the markets, such as long holidays for "national days" / " lunar new year" and " christmas ".
shanghai copper can be delievered in LME, Also LME in ShangHai. If we assume the exchange rate, fees etc, as an constant, How can we design a option in consider of cross market correlation( sometimes missing simultaneous trading time ) and no arbitrage conditions.
---------- Post added at 09:24 AM ---------- Previous post was at 08:30 AM ----------
thanks for Professor Darrel Duffie 's answer:
One approach that I like is the Wishart covariance model. See for example Da Fonseca, Grasselli, and Tebaldi. Just google those names.
Good luck with your research!
Darrell
