Option Model Research Articles

Comparative perspectives and experience of conflict resolution based on separatist movements in the Kingdom of Spain

The relevance is the major feature of the European continent, which is characterised by the fact that most countries in the region have defined borders that are following national or ethnic features. However, based on the investigation of existing separatist movements in Europe, it can be stated that in states with a single national characteristic, different groups with a distinct national identity can develop. Such a situation exists in the Kingdom of Spain, particularly in the Basque Country and Catalonia. The purpose of the presented scientific research is the historical analysis, comparative characteristics and ways of resolving conflict situations that occurred during the separatist processes in the Kingdom of Spain. The main scientific method that was used in writing the presented scientific research is discourse analysis, which allowed, the use of a set of analytical methods of interpreting various texts or statements, identifying the main preconditions, basic characteristics, and distinctive and common features of separatist movements in the Kingdom of Spain. The main results of this research are: analysis of the root causes and identification of crucial features of separatist processes in Spain; generalisation of ways to resolve conflicts based on separatist movements in the state; modelling of further dynamics and options for the development of separatism in the Kingdom. The results of the presented research, and the conclusions that were obtained during this work, can be used as a foundation for future scientific research on this issue; in addition – as a foundation for scientific research in areas relevant to the subject presented in the research. Additional fields of science and areas where the presented results and conclusions can be used in the future are: diplomatic service – in the study of the history of the emergence and ways of resolving conflicts based on separatism in Europe; higher education – in the fields of history, political science, conflict studies – as a historical example of the emergence and resolution of ethnic disputes; for other researchers of the presented subjects

The value of land redevelopment in different types of properties: Considering the effect of hold-out problems on the development probability

Housing price combines the building value and land value of real estate, in which the building value can be measured using its reconstruction cost minus its depreciation. For land value, the future redevelopment value of the land should be considered in addition its present use value. However, the uncertainty of land redevelopment is often high because the development probability is influenced by the benefit of redevelopment and whether an agreement can be reached between landowners. If the influence of these two factors on the likelihood of redevelopment is incorrectly assessed, the land value may be overestimated or underestimated. Hence, this study adopts a real option model to solve the endogenous value of land with redevelopment opportunities. Furthermore, by considering the conflicts of interest between landowners, this study infers that the prices of different types of properties may reflect the land redevelopment value differently. Our inference is that landowners with solely owned houses can redevelop their land at the optimal time without interference from exogenous factors; hence, their land prices should include the redevelopment value calculated based on real options. In contrast, when land ownership is distributed among multiple individuals; hold-out problems emerge, landowners may choose not to undertake redevelopment, and forfeit of the land redevelopment value is plausible. Accordingly, the land value of such real estate can only be estimated based on the cash flow in the current condition. To verify the inferences of this study, in the empirical part of the paper, we use transaction samples from Taipei occurring between 2015 and 2020, which include three types of housing—townhouses (sole ownership of land), apartments (land ownership shared among a few individuals), and high-rise condominium units (land ownership shared among numerous individuals). Using these three types of housing for estimation reveals whether the land redevelopment value of houses is included in their corresponding housing prices, under various ownership concentrations. Subsequently, by using a threshold regression model, the study demonstrates that the likelihood of the existence of land redevelopment value increases with ownership concentration, which contributes to higher housing prices of older houses over time.

A New Stabled Relaxation Method for Pricing European Options Under the Time-Fractional Vasicek Model.

Our objective is to solve the time-fractional Vasicek model for European options with a new stabled relaxation method. This new approach is based on the splitting method. Some numerical tests are presented to show the stability and the reliability of our approach with the theory of options.

Theoretical and empirical analysis of options in open market share repurchases of Taiwan companies

This paper derives option pricing models to formulize the flexibility and conditions that managers have in open market share repurchase programs in Taiwan. We extend the exchange option model by including the regulatory price range restriction and the purpose of the share repurchase. We propose the exchange option model (with price range constraints) and the option portfolio model. The simulated and empirical results show that the market reaction is lower than that in the model of Ikenberry and Vermaelen (1996). The price range constraint may block the market reaction when stock prices are volatile. In addition, investors may pay less attention to the repurchase purpose of returning buyback shares to employees, since there will be a small impact on price. Furthermore, we find that the stock volatility has a significant negative impact on the market reaction to the announcements of the share repurchases.

The Consumer Option Model for Withdrawal Rights in the EU: Analysis of an Alternative Design

Under EU law, consumers have a mandatory “right of withdrawal” in certain situations. Economic and legal literature raises severe doubts as to its effectiveness and fairness. In this article, an alternative design is discussed and examined within the framework of an experimental study: the “consumer option model,” in which every online consumer can choose between a purchase with and a pur­chase without a withdrawal right for a slightly lower price. Three study participants pur­chased two different products in a simulated online shop where the right of withdrawal was presented in three different frames (opt-out, opt-in, no default). The results revealed that a consi­derable number of participants were ready to shop without a right of withdrawal; in their choices framing and product value was of the essence, but not income, and a considerable number of participants reported an under-use of the right of withdrawal in every-day life.

Portfolio Real Option Based on Trigeminal Tree Model in Sustainable Utilization of Exploration Asset

Uncertainty of crude oil market causes the value of oil and gas exploration assets to fluctuate upward, remain unchanged, and fluctuate downward. So exploration project investment is usually chartered by multistages. This brings many challenges to investment decisions regarding the sustainable utilization of exploration assets. To avoid the investment risk of exploration projects, a portfolio option method based on the trigeminal tree model was proposed. By analysing the real options involved in oil and gas exploration assets, the investment process is divided into European options and American options. The pricing model of portfolio options is constructed by the trigeminal tree method, and sequential compound diagram and compound option diagram are built. Volatility is predicted based on the GARCH model, and then, the trinomial tree of the underlying asset value, evolution chart, sequential compound option chart, and portfolio option chart is established, respectively. Finally, the project option value is calculated. The application shows that the ROV of oil and gas exploration project of company A is 1.39 million US$ (USMM$), and the project value is 279.87 USMM$. Compared with the binary tree model, the model is superior to the traditional option pricing method in the application effect, which provides a scientific basis for investment decision-making.

Simplified Option Price Derivations

Previous academic research reveals that mean-variance asset pricing (MVAP) models such as the single-period capital asset pricing model (CAPM) fail to produce rational European option prices. This article shows two adaptations of MVAP models that may be used to value derivatives with nonlinear payouts. The first removes static option arbitrage in investors’ optimized aggregate portfolio selection. The second linearizes the pricing kernel, using a static version of the self-financing condition applied in dynamic option modeling. Both adaptations produce risk-neutral derivative prices in equilibrium for all finite-moment probability distributions of underlying asset prices with compact support. The derivation does not require stochastic calculus, frictionless continuous trading assumptions, or the solution of differential equations. The resulting model is a hybrid of equilibrium and arbitrage techniques that rationally values assets and derivatives.

Using a modified nominal group technique to develop complex interventions for a randomised controlled trial in children with symptomatic pes planus

BackgroundChildren with symptomatic flat feet (pes planus) frequently present for care but there remains uncertainty about how best to manage their condition. There is considerable variation in practice between and within professions. We intend to conduct a three-arm trial to evaluate three frequently used interventions for pes planus (exercise and advice, exercise and advice plus prefabricated orthoses, and exercise and advice plus custom made orthoses). Each of these interventions are complex and required developing prior to starting the trial. This paper focusses on the development process undertaken to develop the interventions.MethodsWe used a modified Nominal Group Technique combining an electronic survey with two face-to-face meetings to achieve consensus on the final logic model and menu of options for each intervention. Using the Nominal Group Technique across consecutive meetings in combination with a questionnaire is novel, and enabled us to develop complex interventions that reflect contemporary clinical practice.ResultsIn total 16 healthcare professionals took part in the consensus. These consisted of 11 podiatrists, two orthotists, two physiotherapists, and one orthopaedic surgeon.Both meetings endorsed the logic model with amendments to reflect the wider psychosocial impact of pes planus and its treatment, as well as the increasing use of shared decision making in practice. Short lists of options were agreed for prefabricated and custom made orthoses, structures to target in stretching and strengthening exercises, and elements of health education and advice.ConclusionsOur novel modification of the nominal group technique produced a coherent logic model and shortlist of options for each of the interventions that explicitly enable adaptability. We formed a consensus on the range of what is permissible within each intervention so that their integrity is kept intact and they can be adapted and pragmatically applied. The process of combining survey data with face-to-face meetings has ensured the interventions mirror contemporary practice and may provide a template for other trials.

Investment in farming under uncertainty and decoupled support: a real options approach

Abstract We develop a real options model to assess the impact of decoupled payments on agricultural investments. The context that we are addressing is the one set by the Common Agricultural Policy where farmers are eligible for decoupled payments as long as their land is properly maintained. We show that decoupled payments are non-neutral with respect to choices concerning timing and capacity. We find that they (i) induce earlier investment with lower productive capacity; (ii) increase the value of the investment option associated with land and (iii) reduce the volatility of farm income. A numerical exercise complements our theoretical analysis.

A real options study on cook stove CDM project under emission allowance price uncertainty

South Korea is one of the countries that have been actively involved in reducing greenhouse gas emissions and global climate action as a party to the Paris Agreement. As the national emissions reduction target has been getting reinforced, an increasing number of South Korean firms have been participating into the Clean Development Mechanism (CDM) projects to secure CER credits, one of which is the ‘improved energy-efficient cook-stove distribution project’ in developing countries. The purpose of this paper is to develop a real options model to analyze investment decisions on cook-stove distribution CDM project in Myanmar, where we estimate the optimal threshold CER price that makes the investment economically feasible. We also analyze the sensitivity of the threshold price across the investment parameters. The results show that our project was economically feasible at the time the project was launched, as the KOC prices were generally higher than the investment threshold price. The sharp decline of the KOC prices in 2020, however, deteriorated the economic feasibility of the project. The results suggest that various risk factors should be incorporated before making investment decisions.

Decision making on investments in photovoltaic power generation projects based on renewable portfolio standard: Perspective of real option

It is now a main global trend to replace the renewable energy feed-in tariffs (FIT) policy with the renewable portfolio system (RPS) policy in the reform of renewable energy policy systems. To solve the practical problem that the current main studies on the decision making about investments by renewable energy enterprises mainly focus on macroeconomic aspects such as government subsidies, renewable energy FIT and carbon taxes, rather than microeconomic aspects such as RPS and the TGC market's influence, a real option model about photovoltaic power generation projects is established to study these projects' sequential decision making about optimal investment opportunity, optimal installed capacity and phased investment. The result shows that phased investment fruit in much higher investment flexibility, longer economic lives and greater project values, and fewer risks for investors as well; lower technical costs and higher TGC prices help acquire the optimal investment opportunities. The conclusions of this study help make better decision making about investments in photovoltaic power generation projects and, from the microcosmic aspect, prove influence of the RPS policy.

Numerical simulation for European and American option of risks in climate change of Three Gorges Reservoir Area

Abstract With the climate change processes over times, all professions and trades in Three Gorges Reservoir Area will be influenced. One of the biggest challenges is the risk of rising sea level. In this situation, a large number of uncertainties for climate changes will be faced in Three Gorges Reservoir Area. Therefore, it is of importance to investigate the complexity of decision making on investing in the long term rising sea level risk related projects in Three Gorges Reservoir Area. This paper investigates the sea level and the temperature as the underlying assets in Three Gorges Reservoir Area. A real option model is constructed to evaluate potential sea level rising risk. We formulate European and American real option models into a linear parabolic variational inequalities and propose a power penalty approach to solve it. Then we obtain a nonlinear parabolic equation. It shows that the nonlinear parabolic equation is unique and solvable. Also, the solutions of the nonlinear parabolic equation converge to the solutions of the parabolic variational inequalities at the rate of order O(λ −k/2). Since the analytic solution of nonlinear parabolic equation is difficult to obtain, a fitted finite volume method is developed to solve it in case of European and American options, and the convergence of the nonlinear parabolic equation is obtained. An empirical analysis is presented to illustrate our theoretical results.

The role of asset payouts in the estimation of default barriers

In the barrier option model of corporate security valuation, the firm’s creditors impose a default-triggering barrier on the firm value to protect their claim. Two disputed issues in the literature are whether the implied default barrier is positive, and whether it is above or below the book value of the firm’s liabilities. We extend the model of Brockman and Turtle (2003) by embedding asset payouts in the valuation of shareholders’ equity. Using a sample of US stocks from the NYSE, AMEX, and NASDAQ exchanges, our paper exploits market and firm information to compute the implied default barrier for thirty 2-digit SIC groups, including industrials and banks. Our results show that the implied default barrier is lower than it is in the received literature, and it can be less than total liabilities, even zero for some firms. The implied physical default probabilities are significantly lower in the presence of payouts, providing a closer fit to the historical corporate default rates, particularly for issuers of speculative-grade bonds.

The Sustainable Care Model for an Ageing Population in Vietnam: Evidence from a Systematic Review

Social demographic studies in Vietnam have shown a growing trend of an ageing population. Demographic trends project that one third of the Vietnamese population will be aged 65 years and older by 2050. Vietnam is a country where the majority of the elderly live with their children, with little savings and pension. The purpose of this review was to explore existing literature on models of care for an ageing population and provide evidence to develop a care model that is suitable for the ageing community in Vietnam. A systematic review utilizing the Preferred Reporting Items for Systematic Reviews and Meta-Analyses (PRISMA) framework was carried out. An extensive literature search was performed, with a focus on articles and other materials with relevance to elderly care in Vietnam in terms of socio-economic, demographic, and associated factors based on comprehensive data sources. The review found that there is a lack of evidence of professional practice for caring for the aged in Vietnam. There also is a lack of evidence of government support for the limited community initiatives to support the ageing. There exist no community models of care for the ageing population in Vietnam. From a global perspective, there exist alternative models of care options to support the elderly through various care models, such as living in assisted-care facilities, home care, and other assistance. Inter-professional practice care models and health services were found to be essential for an ageing population. There is limited literature specifically for the care of an ageing population in Vietnam. Most of the available literature on care models for the aged is drawn from developed countries. The review offers insights into the development of care models for the elderly in Vietnam, with the need for inter-professional efforts in practice settings to support the ageing Vietnamese population. The reviewed literature agrees on the developing global challenges due to ageing. Despite the existing literature on care models for the ageing, there is a lack evidence-based care models concerning the current and future needs of elderly care in middle- and lower-income economies like Vietnam. More evidence is required to establish evidence for best care models for the elderly in developing economies.

Optimal subsidy level for waste-to-energy investment considering flexibility and uncertainty

With the development of waste-to-energy (WTE) technology, waste has become an important energy source in recent years. Currently, WTE investment is highly dependent on government subsidies. How to optimize subsidy levels has thus attracted extensive attention from researchers and government agencies. Most existing studies determined subsidy levels based on the net present value (NPV, i.e., the profit and cost from disposing of waste and selling electricity), neglecting the value generated by flexibly adjusting the investment time to avoid risks. As a result, an underestimated subsidy is achieved and the incentive effect of such subsidy is affected. To address this issue, this paper proposes a real option model to evaluate the value of flexibility. The proposed model reflects realistic decision-making processes and better supports subsidy design by considering flexibility and uncertainty. The proposed model is further applied to a WTE project based on incineration technology located in Shaanxi, China. The lump-sum investment subsidy determined by the proposed model (with flexibility) is larger than that determined by the NPV method (without flexibility). This result verifies the importance of considering flexibility in the subsidy design process. A sensitivity analysis is also performed, which indicates that the feed-in tariff is the most important factor affecting the investment subsidy. These results demonstrate that increasing the volatility rate of uncertain parameters can further increase the investment subsidy with flexibility. Overall, our results may provide useful management insights for government agencies involved in WTE subsidy design.

A Black–Scholes user's guide to the Bachelier model

AbstractTo cope with the negative oil futures price caused by the COVID–19 recession, global commodity futures exchanges temporarily switched the option model from Black–Scholes to Bachelier in 2020. This study reviews the literature on Bachelier's pioneering option pricing model and summarizes the practical results on volatility conversion, risk management, stochastic volatility, and barrier options pricing to facilitate the model transition. In particular, using the displaced Black–Scholes model as a model family with the Black–Scholes and Bachelier models as special cases, we not only connect the two models but also present a continuous spectrum of model choices.

Economic Cost Model of Options to Global Sulphur Cap considering Speed Differentiation

The 2020 global sulphur cap has been implemented to reduce the sulphur emission of the maritime transportation industry. It is a huge challenge for the ship owners to select a proper strategy to comply with the regulation. This study analyzes the economic costs of measures to comply with the sulphur cap including switching to low sulphur fuel oil (LSFO) and scrubbers. Meanwhile, considering the influence of the speed optimization on the voyage cost, an economic cost model of the LSFO method is combined with speed differentiation inside and outside the Sulphur Emission Control Area (SECA). The route from Shanghai to Los Angeles is set as a case study. The optimal speeds inside and outside the SECA are calibrated. Then, the economic costs of both methods are calculated and compared. The results show that the speed differentiation strategy can reduce the economic cost of the LSFO method and thus reduce its cost disadvantage over scrubbers. In addition, a low discount rate would benefit the scrubber option based on sensitivity analysis.

Homotopy Analysis Method for Fractional Barrier Option PDE

This paper proposes a fractional numerical study on Time-Fractional Barrier Option Model (T-FBOM) via highly convergence solution series method known as Homotopy Analysis Method (HAM). Furthermore, the pricing formula for T-FBOM was obtained. The performance of the method on some illustrative examples has been considered. The results obtained were compared with some existing approaches.

Free riding and insurer carbon-linked investment

The paper develops a two-insurer contingent claim framework to evaluate their equities. One insurer conducts carbon-linked investment, while the other conducts conventional (non-carbon-linked) investment. The free-riding issue becomes essential because of the carbon-emission externality. We show that the life insurance policyholders are free riders when either the return of carbon-linked or the conventional investment increases. But the cost burden of policyholder protection is the reduced insurer interest margin. The results also apply to the increased carbon-linked investment volatility and the different coronavirus COVID-19 impacts on the two-insurer interest margins. In the soundness test, we show that insurance stability at the cost of insurer profits is less significant when the carbon-linked investor's barrier increases. Free riding would be intimately relevant to insurance and carbon-emission environments in the barrier option model.

Evaluating the Downstream Development Strategy of Oil Companies: The Case of Rosneft

The relevance of this study is due to the low rate of development of the downstream sectors of Russian oil companies. Against a background of the sale of significant volumes of oil and gas raw materials, Russia lags behind world leaders in the production and consumption of petrochemical and chemical products, with their share in the gross domestic product of the country being only 1.1%. Connected to this is the issue of substantiating strategies of development for the downstream sectors of Russian oil companies, which requires detailed research. In this light, it is necessary to take into account current trends in the worldwide demand on petroleum products and also the opportunities and competitive advantages of Russian oil and gas companies in the creation and development of refineries with a consideration of modern technological, environmental, social and market criteria. The paper tests hypotheses about modernisation as a process of increasing efficiency in the development of the industry as a whole. The results of the study show that the planned pace of development in the industry by means of modernisation proves to be insufficient and requires additional investments in innovative development and new construction. The value of the research lies in the modelling of modernisation strategy options by the example of a large oil company, the estimation of results by the criteria of world average indices of technological efficiency of production and the analysis of these results by state indicators of branch development. The theoretical significance of the research lies in the possibility of using this research approach as an analogue.