A Study on Price Discovery between Options and Futures Markets:The Case of KOSPI 200 DerivativesMarkets

Lee, Woo-Baik; Won, Park Jong

doi:10.21023/jmf.30.2.1

Cited by 3 publications

(2 citation statements)

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“…The Chicago Mercantile Exchange launched temperature index futures in 1999, and since then, weather derivatives have developed rapidly and now represent a mature international trading market [29,30]. Compared with futures, options offer a price discovery function that makes the trading price more realistic than futures prices [31]. Options give the buyer the right to choose, thereby making the trading more flexible.…”

Section: Literature Reviewmentioning

confidence: 99%

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An Actuarial Pricing Method for Air Quality Index Options

Liu

Zhao

Wang

et al. 2019

IJERPH

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Poor air quality has a negative impact on social life and economic production activities. Using financial derivatives to hedge risks is one of the important methods. Air quality index (AQI) options are designed to help enterprises cope with the operational risk caused by air pollution. First, the expanded Ornstein–Uhlenbeck model is established using an autoregressive-generalized autoregressive conditional heteroscedasticity (AR-GARCH) method to predict AQI for a city. Next, the average AQI is constructed to be as the underlying index for the AQI options. We then priced AQI options using an actuarial method with an Esscher transform. Meanwhile payoff functions for the options are established to let enterprises hedge against the operational risk caused by air pollution. Finally, we determined the price of AQI options using data from Xi’an, China, and the example of a tourism enterprise as a case study of how AQI options can be applied to hedge against operational risk for enterprises. With AQI options trading, enterprises can hedge against operational risks caused by air pollution. The applicability of AQI options is wide, it can also be applied in other cities or regions.

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Section: Literature Reviewmentioning

confidence: 99%

“…Figure 9 shows the pricing results for AQI call options. 31 March 2018 to price the options. According to Equation (7), AAQI was 2.28 from January to March 2018.…”

Section: Pricing Of Aqi Optionsmentioning

confidence: 99%