Core Viewpoint - The article introduces the "Liquidity-Adjusted Volatility Index (LVIX)" as a theoretical extension of the Volatility Adjusted Index (SVIX), which allows for deviations from the put-call parity in the context of the Chinese stock market. This development has significant implications for asset pricing and the assessment of systemic risk and expected excess returns in China's financial market [2][3]. Group 1: Market Characteristics and Systemic Risk - By the end of 2025, the total market capitalization of China's stock market is expected to exceed 100 trillion yuan, highlighting its status as one of the largest stock markets globally. The systemic risk in the A-share market continues to attract attention from regulators and investors [3]. - According to modern asset pricing theory, risk and return are two sides of the same coin, where expected excess returns compensate investors for bearing systemic risk. Effectively measuring the expected excess return in the A-share market can enhance price discovery and assist regulators in monitoring systemic risk [3]. Group 2: Challenges in Estimating Expected Excess Returns - Estimating the market's expected excess return is complex, as it is a key factor in pricing models like the Capital Asset Pricing Model (CAPM) and multi-factor models. The expected excess return reflects future returns and is influenced by macroeconomic trends rather than historical performance [5]. - Previous literature often substitutes historical average excess returns for expected excess returns, which has two main drawbacks: actual market excess returns may deviate from expected returns, and historical data is inherently lagging, making it less useful for predictions [5]. Group 3: Utilizing Information Beyond the Spot Market - A natural consideration is whether information from markets outside the spot market can be used to characterize systemic risk and estimate expected excess returns. Different financial markets exhibit distinct characteristics, and investors often trade across these markets, leading to shared information [6]. - Financial derivatives, particularly index options, play a crucial role in reflecting market risk and aiding price discovery. They can lower hedging costs and enhance risk management strategies, providing a data foundation for measuring market risk and estimating future expected excess returns [6].