THE BASIC THEORY OF THE SINO-AMERICAN TRADE WAR AND THE YUAN SETTLEMENT

Liu Xiaowen

This paper discusses the latent volatility of currency options, which serves as an indicator of market participants' expectations regarding future currency fluctuations. Such an understanding of volatility is necessary to formulate multidimensional strategies for working with currency options. That is why central to the study is the analysis of changes in the implied volatility of the Chinese yuan in the context of US dollar options before and after the escalation of trade disputes between China and the United States. Based on the studies conducted, it can be argued that before and after the outbreak of the Sino-US trade war, there is a noticeable increase in the average level of implicit volatility of the yuan in the context of currency options on the US dollar. During the trade conflict, the degree of uncertainty in the market increased, which is reflected in the increase in the center of volatility compared to the pre-war period. At the same time, hostilities have affected seasonal features in the currency options market: the traditional monthly distribution of dynamic volatility has become less pronounced compared to peacetime, which emphasizes changes in market behavior during trade tensions.

Keywords:China-US trade war, yuan currency options vs US dollar, implicit volatility.