HDD and CDD option pricing with market price of weather risk for Taiwan

2008 ◽  
Vol 28 (8) ◽  
pp. 790-814 ◽  
Author(s):  
Hung-Hsi Huang ◽  
Yung-Ming Shiu ◽  
Pei-Syun Lin
Keyword(s):  
Option Pricing ◽  
Market Price ◽  
Weather Risk

scholarly journals Implied Market Price of Weather Risk

2009 ◽  
Author(s):  
Wolfgang K. HHrdle ◽  
Brenda LLpez Cabrera
Keyword(s):  
Market Price ◽  
Weather Risk

scholarly journals A Study of Black–Scholes Model’s Applicability in Indian Capital Markets

Paradigm ◽  
2020 ◽  
Vol 24 (1) ◽  
pp. 73-92
Author(s):  
Anubha Srivastava ◽  
Manjula Shastri
Keyword(s):  
Stock Market ◽  
Option Pricing ◽  
Trading Volume ◽  
Stock Exchange ◽  
Market Price ◽  
Significant Degree ◽  
Pricing Model ◽  
Fair Price ◽  
Black Scholes ◽  
Indian Stock Market

Derivative trading, started in mid-2000, has become an integral and significant part of Indian stock market. The tremendous increase in trading volume in Indian stock market has reflected into high volatility in the option prices. The pricing of options is very complex aspect of applied finance and has been subject of extensive research. Black–Scholes option model is a scientific pricing model which is applied for determining the fair price for option contracts. This article examines if Black–Scholes option pricing model (BSOPM) is a good indicator of option pricing in Indian context. The literature review highlights that various studies have been conducted on BSOPM in various stock exchange across the world with mixed outcome on its relevance and applicability. This article is an empirical study to test the relevance of BSOPM for which 10 most popular industry’s stock listed on National Stock Exchange have been taken. Then the BSOPM has been applied using volatility and risk-free rate. Furthermore, t-test has been used to test the hypothesis and determine the significant relationship between BS model values and actual model values. This study concludes that BSOPM involves significant degree of mispricing. Hence, this model alone cannot be adopted as an indicator for option pricing. The variation from market price is synchronised with respect to moneyness and time to maturity of the option.

scholarly journals The Implied Market Price of Weather Risk

2012 ◽  
Vol 19 (1) ◽  
pp. 59-95 ◽  
Author(s):  
Wolfgang Karl Härdle ◽  
Brenda López Cabrera
Keyword(s):  
Market Price ◽  
Weather Risk

A Study on the Market Price of Weather Risk in Pricing Weather Derivatives

2009 ◽  
Vol 17 (2) ◽  
pp. 49-66
Author(s):  
Kwang-Il Bae ◽  
Jin Hee Choung
Keyword(s):  
New York ◽  
Interest Rates ◽  
Market Price ◽  
Option Price ◽  
Simulation Method ◽  
Weather Derivatives ◽  
Market Prices ◽  
Weather Risk ◽  
Option Pricing Model ◽  
Weather Changes

The weather largely affects economic activity, and thus, companies vulnerable to weather risk need to plan ahead to cope with unexpected weather changes, just as they do for changes in interest rates, oil prices, or foreign exchange rates to stabilize their earning stream. Weather derivatives can be a useful tool for weather risk management. This paper focuses on pricing one of the most popular weather derivatives -HDD/CDD options- and estimating the market price of weather risk (MPR). Historical data are used to construct the stochastic process of temperature, while the current market prices of Chicago and New York HDD futures options are used to extract the implied MPR. The Monte-Carlo Simulation Method is proposed to estimate the price of weather derivatives numerically. In addition, the approximate closed form formula for the options is provided modifying the Alaton, Djehiche, and Stillberg (2002) model. Finally, option price sensitivity to changes in MPR is analyzed to show the important role of the MPR in the weather option pricing model.

A new method to solve fuzzy stochastic finance problem

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Jayanta Kumar Dash ◽  
Sumitra Panda ◽  
Golak Bihari Panda
Keyword(s):  
Option Pricing ◽  
Market Price ◽  
Pricing Model ◽  
Strike Price ◽  
Content Type ◽  
Fuzzy Environment ◽  
Black Scholes ◽  
Option Pricing Model ◽  
A New Technique ◽  
Log Normal

PurposeThe authors discuss the value of portfolio and Black–Scholes (B–S)-option pricing model in fuzzy environment.Design/methodology/approachThe B–S option pricing model (OPM) is an important role of an OPM in finance. Here, every decision is taken under uncertainty. Due to randomness or vagueness, these uncertainties may be random or fuzzy or both. As the drift µ, the degree of volatility s, interest rate r, strike price k and other parameters of the value of the portfolio V(t), market price S_0 (t) and call option C(t) are not known exactly, so they are treated as positive fuzzy number. Partial expectation of fuzzy log normal distribution is derived. Also the value of portfolio at any time t and the B–S OPM in fuzzy environment are derived. A numerical example of B–S OPM is illustrated.FindingsFirst, the authors are studying some various paper and some stochastic books.Originality/valueThis is a new technique.

scholarly journals European Option Pricing under Wishart Processes

2021 ◽  
Vol 2021 ◽  
pp. 1-24
Author(s):  
Raphael Naryongo ◽  
Philip Ngare ◽  
Anthony Waititu
Keyword(s):  
Option Pricing ◽  
Market Price ◽  
Stochastic Volatility Model ◽  
European Option ◽  
Multifactor Model ◽  
Asset Pricing Model ◽  
European Option Pricing ◽  
Volatility Model ◽  
Wishart Processes ◽  
The Fourier Transform

This study deals with a single risky asset pricing model whose volatility is described by Wishart affine processes. This multifactor model with two dependency matrices describing the correlation between the asset dynamic and Wishart processes makes it more flexible enough to fit the market data for short or long maturities. The aim of the study is to derive and solve the call option pricing problem under the double Wishart stochastic volatility model. The Fourier transform techniques combined with perturbation methods are employed in order to price the European call options. The numerical illustrations on pricing predictions show similar behavior of price movements under the double Wishart model with respect to the market price.

An Empirical Test of the Black-Scholes Option Pricing Model and the Implied Variance: A Confidence Interval Approach

1987 ◽  
Vol 2 (4) ◽  
pp. 355-369 ◽  
Author(s):  
Haim Levy ◽  
Young Hoon Byun
Keyword(s):  
Confidence Interval ◽  
Option Pricing ◽  
Implied Volatility ◽  
Empirical Test ◽  
Market Price ◽  
Pricing Model ◽  
Black Scholes ◽  
Option Pricing Model ◽  
S Model ◽  
Over Time

The empirical studies on the Black-Scholes (B-S) option pricing model have reported that the model tends to exhibit systematic biases with respect to the exercise price, time to expiration, and the stock's volatility. This paper attempts to test the B-S model with a new approach: derive the confidence interval of the model call option value based on the confidence interval of the. estimated variance. The test reports that even when the variance's confidence interval is considered, a systematic deviation between the theoretical “range” of the option price values and the observed market price still exist. If the stock variance is constant over time, the interpretation of the results is that the B-S model is wrong. However, if stock variance changes over time, the interpretation of the results is that the implied volatility in options market prices had a tendency to be significantly higher than the estimate that could have been obtained from historical data.

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