By Zhang Chenghui and Li Shifeng, Research Institute of Finance, the DRC

Research Report No 30, 2014

Abstract

The financial options market is the most important part of the financial market. It serves to hedge against risk, reducing financial market fluctuation and providing auxiliary tools for currency policies. The interest rate risk and exchange rate risk is rising due to interest rate liberalization and marketization of the RMB exchange rate. The market will promote financial options products to strengthen risk management and improve protection from financial risk and real economy risk. China, as a great nation, requires a financial market with matched economic power. Developing a financial options market is a necessary task in completing China's financial market.

To reduce or avoid the negative effects of financial options, it should launch stock index options, foreign exchange options and interest rate options. It should also speed up the process of legal construction and actively develop a financial spot market based on the options market.