Option Contracts Research Articles

Pricing of Shanghai stock exchange 50 ETF options based on different volatility models

On March 15, 2022, the volume of trade of the Shanghai Stock Exchange (SSE) 50 ETF option contracts and the CSI 300 ETF option contracts exceeded 10 million for the first time, of which 5,707,400 50 ETF options were traded, and SSE 50 ETF options, as the main force, has become one of the most active ETF option varieties in the world after seven years of vigorous development. The SSE 50 ETF options receive highlights in risk-free arbitrage, hedging, risk management and other aspects. In order to give full play to the function of the SSE 50 ETF options, it is necessary to conduct studies on their pricing. This paper adopts the traditional classical models for pricing European-style options, the BSM model and the volatility model, to price call options and put options of the SSE ETF, and meanwhile analyzes the volatility of the SSE 50 ETF. The empirical results suggest that (1) the volatility of SSE 50 ETF has a weak leverage effect or no leverage effect, which converges with the existence of the inverse leverage effect of the SSE index; (2) the BSM model will underestimate the price of SSE 50 ETF options and is only ideal for pricing in-the-money (ITM) options; while out-of-the-money (OTM) options are highly influenced by time value and therefore cannot be accurately priced.

Options in Derivative Market: A Study on Working and Trends in Option Contracts

Indian derivative market is very vast market. Many assets,securities, products and services are offered in derivative market to the various traders and investors. In India derivative products are offered by both BSE (Bombay stock exchange) and NSE (national stock exchange). Derivatives are classified into two parts Commodity derivatives and financial derivatives. Commodity derivatives are dealt in commodities like soybean, turmeric, oats corns. Financial derivatives include securities, bonds, treasure, foreign exchange, stock index etc. All financial derivatives are performed with the help of futures; options .this paper manly concentrates option contracts. NSE and BSE are also dealt in futures and options. This paper only considers the trends and working of option contracts in BSE. Option contracts are a right to buy or sell security on or before expiry of period at a predetermined price which is called strike price. Options are not an obligation. Call option and put option are two basic positions which are used by trader to manage the risk of buying and selling of underlying asset or security. This paper shows the working and trends of options as indexed options and equity options in BSE.

Accounting of Asian Options Contracts Within The Scope of The Turkish Accounting and Financial Reporting Standards (TAS-TFRS)

Asya opsiyon sözleşmeleri standart olmayan opsiyonlar arasında sıklıkla kullanılan opsiyon sözleşmeleridir. Bu opsiyon sözleşmelerinin diğer standart opsiyon sözleşmelerinden ayırt edici özelliği opsiyon priminin düşük olması, sözleşme tarihindeki dayanak varlığın fiyatı ile uygulamaya koyma tarihinde fiyat aralığının daha az olması nedeniyle makul düzeyde kar veya zararın ortaya çıkmasıdır. Dolayısıyla yatırımcılar riskinden korunmak amacıyla da bu opsiyonları tercih etmektedirler. Bu çalışmanın amacı henüz ülkemizde uygulama alanı olmayan Asya opsiyon sözleşmelerinin diğer opsiyon türlerinden farkını ortaya koymak, Asya opsiyon sözleşmelerinde ortaya çıkan kar veya zararların hesaplanma biçimini anlatarak standartlara göre nasıl muhasebeleştirileceklerine ilişkin öneriler sunmaktır. Bu doğrultuda çalışmada hisse senedi, ham petrol, altın, döviz kuru, kahve üzerine satın alınan Asya ortalama fiyat alım ve satım opsiyon sözleşmelerine ilişkin örnek uygulamalara yer verilmiştir. Asya ortalama fiyat alım ve satım opsiyonunun uygulamaya konulup konulmamasına ilişkin kar-zarar hesaplanarak muhasebe standartları kapsamında opsiyon alıcısı ve opsiyon satıcısının yapması gereken muhasebe kayıtları belirtilmiştir.

A Virtual Trading Project for the Derivative Securities Course

In this paper, I present a simulated trading project for the undergraduate Derivative Securities course which allows students to realistically trade both Futures and Option contracts. The project makes use of the Virtual Trading tool provided on the Chicago Board Options Exchange website, which processes virtual trades in real time using actual market data. Student response to the project's first implementation in Fall 2008 has been overwhelmingly positive. I provide Likert-style survey results describing students' perceptions of various aspects of the assignment, and identify directions for potential future modifications.

On the Effectiveness of Option Contracts under Supply Disruption

On the Effectiveness of Option Contracts under Supply Disruption

Pricing and Profit Distribution in Supply Chain Through Option Contracts

Supply chain can be simplified into two parts: upstream suppliers and downstream distributors. The authors use option contract to coordinate their relationship. But the instability of pure option contract where supplier and distributor deal only by contract makes it difficult for both sides to reach a consensus. They overcome the defect by combining operation model with wholesale price model, and the mix model can reach Pareto improvement because it will increase supplier and distributor's profit at the same time. The distribution of the increasing profit will be influenced by many internal factors. Among these internal factors, the risk aversion and bargaining power can affect the profit distribution between supplier and distributor to a large extent. This paper establishes the mathematical model and chooses risk aversion and bargaining power to analyze. They found that 1) the higher the risk aversion level of the distributor or supplier is, the more its profit will be, and 2) the one with more initiative in the negotiation will reap more profits from the other side in supply chain.

Pricing and hedging wind power prediction risk with binary option contracts

In markets with a high proportion of wind generation, high wind outputs tend to induce low market prices and, alternatively, high prices often occur under low wind output conditions. Wind producer revenues are affected adversely in both situations. Whilst it is not possible to directly hedge revenues, it is possible to hedge wind speed with weather insurance and market prices with forward derivatives. Thus combined hedges are offered to the wind producers through bilateral arrangements and as a consequence, the risk managers of wind assets need to be able to forecast fair prices for them. We formulate these hedges as binary option contracts on the combined uncertainties of wind speed and market price and provide a new analysis, based upon machine learning classification, to forecast fair prices for such hedges. The proposed forecasting model achieves a classification accuracy of 88 percent and could therefore aid the wind producers in their negotiations with the hedge providers. Furthermore, in a realistic example, we find that the predicted costs of such hedges are quite affordable and should therefore become more widely adopted by the insurers and wind generators.

PENENTUAN KONTRAK OPSI TIPE EROPA MENGGUNAKAN MODEL SIMULASI VARIANCE GAMMA (VG)

Options are used as a hedge against stock price uncertainty brought on by unstable stock prices fluctuation. The price of an option contract can be determined using a variety of approaches, one of which is the Variance Gamma. The purpose of this study is to compare the Black Scholes method with the Variance Gamma simulation model to determine the European call option contract price. The first thing that needs to be done is to figure out the moment variance gamma method. These parameters were used as initial values to get an idea of what the parameters that will be used in the simulation will be like. The European call option contract's price is calculated using the simulation results, which are then compared to the Variance Gamma simulation model and the Black Scholes model for the European call option contract. This study shows that the European call option contract's price, which was calculated using the Variance Gamma simulation, is less expensive than the Black Scholes contract's price.

Determination of Stock Option Prices Using the Black Scholes Method On Stocks Listed On the Jakarta Islamic Index for The Period 2021 - 2022

The capital market is one of the investment instruments favored by the Indonesian people. Reporting from KSEI, the number of investor growth from 2019 to 2022 continues to increase. Recorded in 2019 the number of capital market investors in Indonesia reached 2,484,354 and at the end of the listing on November 3, 2022 the number of capital market investors in Indonesia reached 10,000,628. The purpose to be achieved in this study is to find out and explain the calculation of the value of call options with weekly company stock data in order to find out which stocks are suitable for hedging and decisions that can be made based on the data that has been calculated. The type of research used is descriptive research with a quantitative approach. The sample taken amounted to 12 companies obtained based on determining the criteria in the form of increasing shares seen from the company's trend line during 2021-2022. The calculation method used is Black-Scholes by utilizing Microsoft Excel. The results showed that by using the Black Scholes method in determining option contracts, some stocks in certain semesters are not recommended to use call option contracts because the option price is zero (0), such as INCO shares in semester 2, PTBA shares in semester 4, TLKM shares in semester 3, and UNTR shares in semester 2. The results of the comparison of the Black Scholes stock option contract with the JCI call option contract show that ADRO, AKRA and PTBA shares can provide the highest profit for investors when using the Black Scholes method because they have a lower call option contract value than the market value. ADRO, AKRA and PTBA stocks have a positive purchase option contract difference value of 3 semesters so that they can provide the highest profit for investors.

Multi-period pricing and order decisions for fresh produce with option contracts

Multi-period pricing and order decisions for fresh produce with option contracts

An Alternative Multiple Contracts Version of the SACRE

Taking into consideration that the SACRE (system of increasing amortization in real terms), as originally instituted by Caixa Econômica Federal, is not financially consistent, an exact procedure, denoted as SACRE*, was proposed in de Faro and Lachtermacher (2022). An alternative version (SACRE-F) of this system was proposed by Forger (2010). The present paper submits a multiple contract version of SACRE-F. It is shown that, taking into due account the financial institution cost of capital, it is always better to implement the multiple contracts approach instead of the single contract option. An comparison between the both alternatives are detailed.

Emergency material reserve problem with option contract considering low carbon disposal cost

Emergency material reserve problem with option contract considering low carbon disposal cost

Remanufacturing supply chain coordination through option contracts under uncertain demand

Remanufacturing supply chain coordination through option contracts under uncertain demand

Pricing of American Parisian option as executive option based on the least‐squares Monte Carlo approach

AbstractIn this study, we create a novel American double‐barrier Parisian call option contract that may be utilized as an executive option for listed companies to incentivize staff and replace the classic American option. We address the option pricing problem by developing state variables to identify the price state and using the least‐squares Monte Carlo approach. We present several Lévy processes to simulate the movement path of the underlying asset. We discover that geometric Brownian motion and normal inverse Gaussian (NIG) process have successful outcomes, and NIG process has greater calculation accuracy than variance gamma process. The barrier width and window length are positively connected with the price of an American Parisian option, whereas the strike price is negatively correlated with it. Increasing the number of discrete periods of the contract will enhance the pricing accuracy.

Emergency supplies prepositioning via a government-led supply chain with a loss-averse supplier with anchoring

This paper investigates how to strategically stock and procure disaster supplies to respond to large-scale disasters under government-private framework agreements. We first consider a humanitarian supply chain (HSC) comprised of a humanitarian agency and a loss-averse supplier with anchoring. The agency buys a certain quantity of emergency supplies as regular stocks and simultaneously orders physical options through an option contract before major disasters occur. The supplier determines how many physical emergency products are produced as additional stocks. With backward derivation, the optimal decisions of regular stocks and additional stocks are characterized, respectively. Furthermore, several conditions under which the HSC could achieve coordination are tightly related to the option and exercise prices as well as the supplier’s levels of loss aversion and optimism. Interestingly, either over-ordering and under-stocking or under-ordering and over-stocking would occur, depending on whether the loss aversion effect dominates the anchoring effect. As the level of loss aversion increases, both the utility and profit of the supplier decrease. Moreover, even if the supplier is loss-averse, there is a Pareto option contract mechanism that benefits both parties when compared to the government-managed model. Finally, several numerical experiments are carried out, and some managerial insights based on different disaster scenarios are presented.

Проблемы защиты прав потребителей при заключении опционных договоров

In this article, a study of judicial practice on disputes arising from the conclusion of option contracts with consumers, imposed in lending, is carried out. The use of the option contract structure in relations with citizens when they use financial services for personal needs is unjustified, obviously losing for consumers. It is concluded that it is necessary to universally recognize such agreements as contracts for the provision of paid services with the right of a citizen to refuse, as well as the impossibility of limiting the operation of the law “On Consumer Rights Protection” from the sphere of consumer relations in the case of using the construction of an option contract.

Competition, investment reversibility, and equity risk premium

This paper investigates the role of investment reversibility in determining the relationship between product market competition and equity risk premium. We develop a unified real-option framework involving corporate investment and disinvestment decisions in a continuous-time Cournot–Nash equilibrium. The effect of competition on a firm’s risk premium induced by contraction options is negative and similar to that on the risk premium induced by expansion options; however, for assets in place, more competition results in a higher risk premium by increasing operating leverage. Notably, investment reversibility rather than product market demand moderates the competition-risk premium relationship. Our model predicts that the equity risk premium is more negatively correlated with the level of competition if investments are more reversible because firms are more likely to adjust their capacity in response to uncertain demand and this flexibility attenuates the positive operating leverage effect. We find robust empirical evidence to support our theoretical prediction.

Research on Retailers' Ordering Strategies Considering Customer Behavior Responses Under the Risk of Supply Disruption

On the basis of considering a two-level supply chain consisting of a retailer and two suppliers, the expected profit model under the single-source and dual-source procurement patterns of the retailer was constructed to explore the impact of supply disruption risk on the retailer's choice of suppliers, and then to obtain the optimal ordering strategy and the expected profit of the retailer under different conditions. Results show that: (1) Retailers' ordering strategies are influenced by a variety of factors, such as the risk of supply disruption, the selling price of goods, the retailer's out-of-stock costs, option contract prices, and execution prices. That is, retailers are more inclined to adopt a dual-source sourcing strategy when option prices and strike prices decrease or when selling prices and out-of-stock costs increase. (2) Retailers would choose to single source from risk suppliers rather than option suppliers in order to maximize profits. (3) When the risk of supply interruption increases, the expected profit of retailers would decrease. Although the use of option contracts can withstand certain interruption risks, adding option suppliers is not always better than purchasing from risk suppliers alone.

Binomial Method in Bermudan Option

The Bermudan option allows the contract holders to make and buy a hybrid contract between American and European options. Bermudan option contract can be executed at certain times until the due of the contract. The purpose of this research is to determine the price of the Bermudan option using the binomial method, and then to compare the binomial method result of n steps with the market option price. In determining stock prices at each point, there will be two branches of the binomial method: up and down branches. These branches represent the movement of stock prices in the market. The result shows the price of Bermudan option is convergent at a certain value when the binomial procedure is enlarged. The comparison of the Bermudan option price using a binomial method to the market price shows that the price of Bermudan option is an approach to the market price in certain conditions. Empirically, the price of Bermudan call option is in approach to the market option price or has a minimum error when the exercise price is below the current stock price. The price of Bermudan put option empirically is in approach to the market option price or having a minimum error when the exercise price is above the current stock price.

Problems of Using an Option Agreement in Legal Relations with the Participation of Consumers

Currently, the construction of an option agreement used in relations with the participation of consumers causes disputes related to the qualification of this agreement, its content, termination, invalidation. Due to the absence of a special law regulating legal relations under an option agreement outside the financial market, the norms of the Law of the Russian Federation “On Consumer Rights Protection” began to apply to them. The purpose of the presented article is to substantiate the need to improve the design of an option agreement to prevent abuse of the right by the participants in these legal relations. The study of the option contract was carried out on the basis of methods of system analysis, comparison, logical techniques, a special legal method of cognition of the phenomena of legal reality. The article substantiates that the construction of an option contract can be used to form unfair terms of the contract. The problems of the lack of uniformity of judicial practice on certain issues related to the resolution of disputes on option contracts with the participation of consumers have been identified.