Money Options Research Articles

The influence of COVID-19 on intertemporal choices in the health and economy domains

BackgroundWith the spread of COVID-19, concerns regarding its adverse effects have arisen. Based on affect regulation theory and construal level theory, this study explored how COVID-19 affects intertemporal choice in the health and economy domains, self-other differences for intertemporal choice were also inspected. The study examined whether psychological safety can moderate the relationship between COVID-19 and intertemporal choice. MethodsA 2 (COVID-19 status: pre-COVID-19, during-COVID-19) × 2 (decision maker role: decision for self, decision for others) × 2 (domain: health, economy) three-factor hybrid experiment was employed. Results(1) Individuals in during-COVID-19 condition preferred more immediate options. (2) Delayed options were preferred more in the health domain. Preference for immediate money options enhanced during than before COVID-19. However, COVID-19 status did not affect choices related to health. (3) Delayed options were preferred more when making intertemporal choices for others than for oneself under the pre-COVID-19 condition. Self-other differences for intertemporal choice disappeared during COVID-19. (4) Psychological safety moderated the effect of COVID-19 on intertemporal choice. ConclusionsDuring COVID-19, individuals’ impulsive preference of intertemporal choice increased. COVID-19 affected intertemporal choice regarding economy and the self-other differences for intertemporal choice. Psychological safety could buffer the effect of COVID-19 on intertemporal choice. ValueThis study can provide empirical evidence to affect regulation theory and level of explanation theory as well as guide individuals in making scientific decisions in health and economic domains under public health emergencies.

Activity of informed traders and stock returns

PurposeRecent studies suggested the ratio of option to stock volume reflected the private information. Informed traders were drawn to the options market for its leverage effect and relatively low transaction costs. Informed traders use different intervals of option moneyness to execute their strategies. The question is which types of option moneyness were traded by informed traders and what information was reflected in the market. In this study, the authors focused on this question and constructed a method for capturing the activity of informed traders in the options and stock markets.Design/methodology/approachThe authors constructed the daily measure, moneyness option trading volume to stock trading volume ratio (MOS), to capture the activity of informed traders in the market. The authors formed quintile portfolios sorted with respect to the moneyness option to stock trading volume ratio and provided the capital asset pricing model and Fama–French five-factor alphas. To determine whether MOS had predictive ability on future stock returns after controlling for company characteristic effects, the authors formed double-sorted portfolios and performed Fama–Macbeth regressions.FindingsThe authors found that the firms in the lowest moneyness option trading volume to stock trading volume ratio for put quintile outperform the highest quintile by 0.698% per week (approximately 36% per year). The firms in the highest moneyness option trading volume to stock trading volume ratio for call quintile outperform the lowest quintile by 0.575% per week (approximately 30% per year).Originality/valueThe authors first propose the measures, moneyness option trading volume to stock trading volume ratio, that combined with the trading volume and option moneyness. The authors provide evidence that the measures have the predictive ability to the future stock returns.

Premier Wallet: banking the unbanked population in Somalia

Learning outcomes Upon reading, analyzing and participating in the classroom discussion of this case study, students will be able to use the blue ocean strategy (mainly the Strategy Canvas tool) to analyze how companies establish their products as viable and the go-to solution for consumers; perform a competitive analysis for competitive products; learn how to use data from the case, including industry trends, to predict the future market position of products; and learn how to develop strategies for new products in the market. Case overview/synopsis Abdishakur M. Afrah, who served as the Head of Business Development at Premier Bank, oversaw a substantial banking portfolio, which included Premier Wallet – the first digital wallet in Somalia. This case study outlines Premier Wallet’s journey and its transformative impact on the banking sector. Owing to the mobile wallet, consumers could, for the first time, engage in purchasing, withdrawing cash, shopping online and topping up without needing a bank account at Premier Bank. This allowed for the financial inclusion of the unbanked Somali population. This case study also highlights the Wallet Send feature, a disruptive feature that challenged the prevalent Hawala system in Somalia. This feature enabled customers to send money across 110 countries via their smartphones, facilitating direct deposits to the mobile or bank accounts of their family and friends or to cash withdrawal points nearby. Despite these advanced features, Premier Wallet struggled with broader acceptance, hindered by a mere 9% internet penetration, the absence of a national identification (ID) system and stiff competition from WAAFI, a fintech application supported by Hormuud Telecom, Somalia’s leading telecommunications company. The case study also delves into the strategic decisions Afrah had to make to position Premier Wallet as the top mobile money option for consumers in Somalia. Complexity academic level This case study is suited for undergraduate-level courses. Supplementary materials Teaching notes are available for educators only. Subject code CSS 3: Entrepreneurship

Barrier options pricing under stochastic volatility using Monte Carlo simulation

The aim of this paper is to evaluate barrier options by considering volatility as stochastic following the CIR process used in Heston (1993). To solve this problem, we used Monte Carlo simulation. We studied the effects of stochastic volatility on the value of the barrier option by considering different values of the determinants of the option. We illustrated these effects in twelve graphs. We found that in general, regardless of the parameter under study, the stochastic volatility model significantly overvalues the in-the-money (ITM) barrier options, and slightly the deep-in-the money (DIP) options, while slightly undervaluing the near-out-the money (NTM) options.

Analisis Non-Hierarchical Clustering dan Lagrangean Multiplier dalam Penentuan Bobot Portofolio Optimal Saham Perbankan Indonesia

Investment banking is a financial entity. Investment banking is an important financial intermediary that is indispensable in the capital market. The increasing interest of investors in investing in the stock market has increased because the stock market offers flexible and transparent money options opportunities for risk sharing with the potential for positive returns. Every investor wants a high rate of return with a low risk value. Risk cannot be eliminated, but can be minimized. Clustering means finding and defining a number of clusters (or groups) in a data set. Grouping is done based on numerical equations or distances (dissimilarities). The k-means algorithm is a grouping algorithm based on distance. In the k-means algorithm, the smaller the distance between the samples, the higher the similarity. The k-medoids algorithm is used to find medoids in a cluster which is the center point of the cluster. The return value or commonly known as the return on the funds invested in the investment. Portfolio is a collection of several investment instruments formed with the aim of meeting investment goals. obtained 5 clusters using k-means algorithm with total of wss 23,606. The optimal portfolio weight percentage for each stock formed is BMAS (9.11%%), BANK (32.78%), ARTO (28.84%), BBYB (16.72%), and BBHI (12.54%). Furthermore, from the results of the optimization calculations that have been obtained,the expected return portfolio value is and the portfolio variance is . Investing Rp.1.000.000.000,-, then the expected return value that will be obtained when choosing this portfolio is Rp.11.094.300,-.

Analysis of Financial Management Information Systems in Improving Performance at the Office of the Sub-District Head of Jagong Jeget (Case study of the Office of the Head of Sub-District of Jagong Jeget)

Abstract A financial information system is an information system designed to provide information about money options for users throughout the company. The financial information system is part of the MIS which is used to solve corporate financial problems. In general, the financial information system has an income system consisting of a data processing subsystem supported by an internal audit subsystem that provides internal data and information. For large companies it usually has staff internal auditors. Like other subsystems, this system is also equipped with the financial intelligence subsystem, which collects information from the environment.

Informed options strategies before corporate events

We analyze how informed investors trade in the options market ahead of corporate news when they receive private, but noisy, information about the timing and impact of these announcements on stock prices. We propose a framework that ranks options trading strategies (option type, maturity, and strike price) based on their maximum attainable leverage when price-taking investors face market frictions. We exploit the heterogeneity in announcement characteristics across twelve categories of corporate events to support that event-specific information signals are informative for announcement returns and that they impact the optimal choice of option moneyness and tenor.

The Profitability of Volatility Trading on Exchange-traded Dollar-rupee Options: Evidence of a Volatility Risk Premium?

This article examines the profitability of short volatility strategies in the exchange-traded USDINR options market. Returns from delta-hedged short positions in straddles, strangles and individual call and put options are examined across different trading horizons and volatility regimes. The study finds that short volatility strategies yield significant mean and median returns regardless of the trading horizon and option moneyness before considering transaction costs. This is suggestive of a volatility risk premium priced in USDINR options. However, the returns are found to be insignificant and even negative after accounting for trading costs such as bid-ask spreads and brokerage. The study concludes that although USDINR options appear to be overpriced because of the volatility risk premium, short option strategies can be profitably exploited only by market makers and institutional investors facing low spreads and funding costs. The findings are suggestive of an informationally efficient market.

A transform-based method for pricing Asian options under general two-dimensional models

We propose a unified transform-based method, which we call the extended double spiral (EDS) method, for pricing arithmetic Asian options under general two-dimensional (2D) models that nest regime-switching Lévy models, stochastic volatility (SV) models with Lévy jumps, and time-changed Lévy models. We first construct a new single backward induction in the state space that relaxes the restriction of the independent increments of the log-asset price. Second, we build an exact and explicit double backward induction in the Fourier space based on this single backward induction, a combination of the 1D Fourier transform method and a key function characterizing the 2D model, and the double spiral method. Third, we develop a unified EDS algorithm to recursively implement this double backward induction via the fast Fourier transform (FFT), various quadrature rules, asymmetric truncation boundaries, and so on. Extensive numerical results across a broad class of 2D models, monitoring frequencies, option moneyness, and model parameters demonstrate that our method is remarkably accurate, efficient, robust, simple to implement, and widely applicable.

Failing to forecast rare events

Do more talented traders prefer to bet on and against rare events or common events? Bets on rare events include out of the money options. Bets against rare events include the carry trade and investment grade bonds. In a model where traders specialize, equilibrium pricing reflects trading ability: A market with more skilled traders has a larger bid ask spread. We show that lower skill traders bet on and against rare events, while higher skill traders bet on and against frequent events, leading to higher bid-ask spreads in common event assets, and reducing financial markets’ ability to predict rare events.

SISTEM INFORMASI PENGELOLAAN KEUANGAN DI KANTOR CAMAT KECAMATAN BABAT TOMAN

A financial information system is an information system designed to provide information about money options for users throughout the company. The financial information system is part of the MIS which is used to solve corporate financial problems. In general, the financial information system has an income system consisting of a data processing subsystem supported by an internal audit subsystem that provides internal data and information. For large companies it usually has staff internal auditors. Like other subsystems, this system is also equipped with the financial intelligence subsystem, which collects information from the environment.

Evaluation of equity-linked products in the presence of policyholder surrender option using risk-control strategies

AbstractThroughout the past couple of decades, the surge in the sale of equity-linked products has led to many discussions on the evaluation and risk management of surrender options embedded in these products. However, most studies treat such options as American/Bermudian style options. In this article, a different approach is presented where only a portion of the policyholders react optimally due to the belief that not all policyholders are rational. Through this method, a probability of surrender is obtained based on the option moneyness and the product is partially hedged using local risk-control strategies. This partial hedging approach is versatile since few assumptions are required for the financial framework. To compare the different surrender assumptions, the initial capital requirement for an equity-linked product is obtained under a regime-switching equity model. Numerical examples illustrate the dynamics and efficiency of this hedging approach.

Risk perception and eye-tracking: a research on university students

Purpose- The purpose of this study is to analyze the risk perception of university students by the use of eye-tracking technique and reveal the relation between risk perception, financial literacy and financial behavior. Methodology- In order to measure risk perception, financial literacy financial behavior and demographics of participants four different questionnaires were offered. To measure risk perception, participants were asked to make a choice between safe money and lottery game. While the participants were answering the questions, their eye movements were recorded via an eye-tracking device. The data was analyzed by Chi square test, Fisher’s test, Sign Test and Mann-Whitney U test. Findings- The risk perception is not subject to change although switch to safe money option has been observed at early stages of games when the amount of safe money is increasing. There is a difference in gaze time under different scenarios and risk attitudes. No relation has found between eye movements, financial literacy and behavior. Conclusion- The amount of safe money has an effect on participants’ choice on the lottery/safe money option; in spade of the finding on differences in fixation time under different scenarios and risk attitudes, no relation could be documented between eye movements, financial perception, financial behavior and financial literacy.

COVID-19 Helicopter Money, Monetary Policy and Central Bank Independence: Economics and Politics

This article discusses a form of fiscal monetization that produces losses in the central bank’s balance sheet, without a permanent increase in the money base. If an independent central bank acts as a long-sighted policymaker, an optimal helicopter monetary policy can be identified. At the same time, if the government in charge is made up of career-concerned politicians and citizens are heterogenous, then the policy mix will produce distributional effects, and conflicts between politicians and central bankers will be likely. Political pressures will arise and the helicopter money option will be less likely. The framework is applied in a discussion of the economics and politics of issuing COVID-19 perpetual bonds with the European Central Bank as the buyer.

Use of independent valuation specialists in valuing employee stock options: evidence from IPOs

We investigate the impact of independent valuation specialists on the downward bias of pre-initial public offering employee stock option valuations. Undervalued stock price estimates underlying firms’ option grants produce option valuations that overstate earnings and provide employees with deep in the money options. We find independent stock price valuations are more likely for firms with a Big Four auditor and an audit committee accounting expert. Furthermore, valuations prepared by independent valuation specialists are less downward biased than those prepared internally. Cross-sectional results suggest the following. First, independent valuations have a stronger effect on reducing downward bias when the board is more independent, suggesting independent boards facilitate independent valuations. Second, independent valuations have a weaker effect on reducing downward bias when an accounting expert sits on the audit committee and when CEO equity ownership is greater, suggesting these factors offset the need for an independent valuation to reduce downward valuation bias.

Show Me the Money: Option Moneyness Concentration and Future Stock Returns

Informed traders often use options that are not in-the-money due to higher potential gains for a smaller upfront cost. Thus, trading activity by option moneyness should be a gauge of informed option trading. We construct a dollar volume-weighted average moneyness measure to capture option trading activity at different moneyness levels. Stock returns increase with this measure, suggesting more trading activity in options with higher leverage predicts future stock returns. Our results hold cross-sectionally and at the portfolio level yielding a Fama-French five-factor alpha of 12% per year for all stocks and 33% per year for high implied volatility stocks.

Show me the money: Option moneyness concentration and future stock returns

AbstractInformed traders often use options that are not in‐the‐money due to higher potential gains for a smaller upfront cost. Thus, trading activity by option moneyness should be a gauge of informed option trading. We construct a dollar volume‐weighted average moneyness measure to capture option trading activity at different moneyness levels. Stock returns increase with this measure, suggesting more trading activity in options with higher leverage predicts future stock returns. Our results hold cross‐sectionally and at the portfolio level yielding a Fama–French five‐factor α of 12% per year for all stocks and 33% per year for high implied volatility stocks.

Hedging Macroeconomic and Financial Uncertainty and Volatility

We study the pricing of shocks to uncertainty and volatility using a wide-ranging set of options contracts covering a variety of different markets. If uncertainty shocks are viewed as bad by investors, they should carry negative risk premia. Empirically, however, uncertainty risk premia are positive in most markets. Instead, it is the realization of large shocks to fundamentals that has historically carried a negative premium. In other words, we find that the return premium for gamma is negative while that for vega is positive. These results imply that it is jumps, for which exposure is measured by gamma, not forward-looking uncertainty shocks, measured by vega, that drive investors' marginal utility. In further support of the jump interpretation, the return patterns are more extreme for deeper out of the money options.

Tradability, closeness to market prices, and expected profit: their measurement for a binomial model of options pricing in a heterogeneous market

A reliable method of options pricing in real time would help various players, including hedgers and speculators, to make informed decisions. In this study, we develop an extensive simulation with multiple business environments, which includes the use of real data from the S&P 500 Index between the years 2010–2017 for the 30 days prior to expiration of the options. Forecasted tradability is computed based on the SH model: a theoretical model of real-time options pricing that takes into account players’ heterogeneity with regard to their willingness to accept offers proposed by the opposing player. The quality of the model is examined for the scenario in which the model players are speculators who act against the real market prices. We show that the equilibrium prices predicted by the SH model are close to the market prices (a deviation of up to approx. 3%) in an In-The-Money environment. Additionally, the tougher the players (i.e., the greater their level of unwillingness to accept a bid from the opposing player), the higher the average tradability. We also find that the level of willingness of the players has a greater effect on tradability than does option moneyness or the market trend.

Volatility information trading in the index options market: An intraday analysis

By analyzing intraday volatility information trading according to the demand for options, we determine the types of investors that are informed about future spot market volatility and conduct volatility information trading in a highly liquid options market. Although the overall aggregate options demand does not predict intraday market volatility, the vega-weighted net demand of foreign investment firms conveys significant information about future volatility dynamics. By tracking the positions of all options market participants according to option moneyness, we find that foreign investment firms conduct volatility trading using highly levered options and that their intraday volatility information superiority is more prominent when they close their existing positions.