Kind Of Options Research Articles

India’s Energy Strategy for Inclusive Sustainable Development

Energy is critical for the growth of the economy as well as for human development. Not just electricity but also clean cooking fuels and fuels for mobility are required. India aspires to grow at a high rate over the next decade. How much energy would that require? What has been our policies? Why and how should it be changed and what kind of options do we have? I look at these issues in this paper.

About Long-Term Cross-Currency Bermuda Swaption Pricing

This paper details first the pricing process of a Bermuda swaption and, in a second step, the pricing of a cross-currency Bermuda swaption from a computational point of view. Our aim is to examine the lengthy process that provides a Bermuda swaption price with special attention to the tests used for assessing the coherence of the price. We only consider long-term derivatives that lead to issues related to missing data and require calibration adjustment. We also deal with the sensitivity of the cross-currency swaption price to the choice of model. The standard model to price this kind of options is a 3-factors hybrid model based on the Libor Market Model that typically combines the domestic market, the foreign market and the foreign exchange market. We study the impact of each one of these stochastic factors on the price of a long-term cross-currency Bermuda swaption. In particular, this study illustrates the relation between the cross-currency product and the volatility of each one of the three markets involved (domestic, foreign and the foreign exchange market).

Valuing retail lease options through time

PurposeRetail properties are a perfect example of a property class where revenues determine the rent for the property owners. Estimating the value of new retail developments is challenging, as the initial revenues can have a significant variance from the long-term revenue levels. Owners and tenants try to manage this problem by introducing different kind of options, such as overage rent and extension rights, to the lease contracts. The purpose of this paper is to value these options through time for different types of retailers, using real-life data with a method that can be easily applied in practice.Design/methodology/approachThis paper builds upon the existing papers on real option studies but has a strong practical focus, which has been identified as a challenge in the field. The paper presents simple mathematical equations for valuing overage rent and extension options. The equations capture the value related to uncertainty (volatility) that is missed by standard valuation practices.FindingsThe results indicate that overage and extension options can represent a significant proportion of retail lease contract’s value and their value is heavily time-dependent. The option values differ greatly between tenants, as the volatilities can have a large spread across tenants. The paper suggests that the applicability of option pricing theory and calculus should not be considered as an insurmountable barrier any more, rather a greater challenge for the practical adaptability of the method can be the availability of real-life data that is a common problem in real option analysis.Practical implicationsThe value of extension and overage options varies greatly between tenants. In general, the property owner can try balance the positive effects from the overage rents to the negative effects of tenant extensions. However, this study tries to highlight that, as usual, using the “law of averages” can result into poor valuation in this context as well. Even the data used in this study provide valuable findings for the property owner as an analytical deduction can be made that certain types of tenants have higher volatilities and this should be acknowledged when valuing options within lease contracts.Originality/valuePrevious literature in this topic often takes the input data for the option valuation as granted rather than trying to identify the real-life data available for the calculation. This is a common problem in real options valuation and it seems to be one of the reasons why option valuation has not been used widely in practice. This study has used real-life data to assess the problem and more importantly assessed the data across different types of tenants. The volatility spread between different types of tenants has not been discussed previously, even though it has a significant importance when using option pricing in practice.

Catastrophe equity put options with target variance

In this study, we consider a new class of catastrophe equity put options, whose payoff depends on the ratio of the realized variance of the stock over the life of the option and the target variance, which represents the insurance company’s expectation of the future realized variance. This kind of options could help insurance companies raise more equity capital when a large number of catastrophic events occur during the life of the option. We employ a compound doubly stochastic Poisson process with lognormal intensity to describe accumulated catastrophe losses and assume the volatility varies stochastically. Finally, numerical results are presented to investigate the values of this class of options.

Implementation of the modified Monte Carlo simulation for evaluate the barrier option prices

In this paper, we apply an improved version of Monte Carlo methods to pricing barrier options. This kind of options may match with risk hedging needs more closely than standard options. Barrier options behave like a plain vanilla option with one exception. A zero payoff may occur before expiry, if the option ceases to exist; accordingly, barrier options are cheaper than similar standard vanilla options. We apply a new Monte Carlo method to compute the prices of single and double barrier options written on stocks. The basic idea of the new method is to use uniformly distributed random numbers and an exit probability in order to perform a robust estimation of the first time the stock price hits the barrier. Using uniformly distributed random numbers decreases the estimation of first hitting time error in comparison with standard Monte Carlo or similar methods. It is numerically shown that the answer of our method is closer to the exact value and the first hitting time error is reduced.

Managing the Low-Carbon Transition - From Model Results to Policies

Model analysis within the ADAM project has shown that achieving low greenhouse gas concentration levels, e.g. at 400ppm CO2-eq, is technologically feasible at costs of a few percent of GDP. However, models simplify the dynamics involved in implementing climate policy and the results depend on critical model assumptions such as global participation in climate policy and full availability of current and newly evolving technologies. The design of a low stabilization policy regime in the real world depends on factors that can only be partly covered by models. In this context, the paper reflects on limits of the integrated assessment models used to explore climate policy and addresses the issues of (i) how global participation might be achieved, (ii) which kind of options are available to induce deep GHG reductions inside and outside the energy sector, and (iii) which risks and which co-benefits of mitigation options are not assessed by the models.

When You Offer Options

A STUDENT ENROLLED in the Biology 108-109 sequence at Purdue University chooses up to 25% of his curriculum during his enrollment. His choice is made from a list of optional instructional packages, minicourses, that have been described elsewhere (Hurst et al. 1970; Hurst and Postlethwait 1971; Postlethwait and Hurst 1972; Postlethwait et al. 1972; Hurst and Postlethwait 1973). The question arose early in the evolution of this format as to what kind of options ought to be offered and what kind of criteria should be used in generating topics, titles, and packages to fit student needs and preferences. The policy adopted for Biol. 108-109 is that whatever topic is of interest to students, whatever topic is of interest to the instructor, or whatever topic is of sufficient interest to a student or a graduate teaching assistant to cause them to develop or help to develop an adequate instructional package is allowable. Over a period of 11 semesters many topics have been explored, and over 50 different content areas have been developed into optional minicourses. Many of these topics were suggested by students. Most of the minicourses have undergone extensive revision, and some have been buried. After a suitable time period or when an interest has seemingly been reawakened, some topics and titles have been resurrected and new packages developed. Some buried topics may never resurface for lack of interest on the part of potential minicourse developers. Minicourses have been developed by graduate and undergraduate teaching assistants, participants in summer development workshops, and the NSF-supported Minicourse Development Project directed by S. N. Postlethwait. One minicourse was prepared by students in the course, and I have developed several myself.