Option pricing on sesame price using jump diffusion models
In this paper, we aim at developing a model for option pricing to reduce the risks associated with Ethiopian sesame price fluctuations. The White Humera Gondar Sesame Grade 3 (WHGS3) price, which is recorded from 5 November 2010 to 30 March 2018 at Ethiopia Commodity Exchange (ECX) market, is used t...
| Main Authors: | , , , |
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| Format: | Article |
| Language: | English |
| Published: |
Ayandegan Institute of Higher Education,
2020-03-01
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| Series: | International Journal of Research in Industrial Engineering |
| Subjects: | |
| Online Access: | http://www.riejournal.com/article_105448_c58f68ce716fb003111baee20f9be1db.pdf |
| _version_ | 1818589727175999488 |
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| author | T. Berhane M. Adam G. Awgichew E. Haile |
| author_facet | T. Berhane M. Adam G. Awgichew E. Haile |
| author_sort | T. Berhane |
| collection | DOAJ |
| description | In this paper, we aim at developing a model for option pricing to reduce the risks associated with Ethiopian sesame price fluctuations. The White Humera Gondar Sesame Grade 3 (WHGS3) price, which is recorded from 5 November 2010 to 30 March 2018 at Ethiopia Commodity Exchange (ECX) market, is used to analyze the price fluctuation. The nature of log-returns of the price is asymmetric (positively skewed) and exhibits high kurtosis. We used jump diffusion models for modeling and option pricing of sesame price. The method of maximum likelihood is applied to estimate the parameters of the models. We used the Root Mean Square Error (RMSE) to test the goodness of fitting for the two models to the data. This test indicates that the models fit the data well. The techniques of analytical and Monte Carlo simulation are used to find the call option pricing of WHGS3 sesame price. From the results, we concluded that Double Exponential Jump Diffusion (DEJD) model is more efficient than Merton’s model for modeling and option pricing of this sesame price. |
| first_indexed | 2024-12-16T09:45:14Z |
| format | Article |
| id | doaj.art-69562f0923f043b78ec2d21bbdf53514 |
| institution | Directory Open Access Journal |
| issn | 2783-1337 2717-2937 |
| language | English |
| last_indexed | 2024-12-16T09:45:14Z |
| publishDate | 2020-03-01 |
| publisher | Ayandegan Institute of Higher Education, |
| record_format | Article |
| series | International Journal of Research in Industrial Engineering |
| spelling | doaj.art-69562f0923f043b78ec2d21bbdf535142022-12-21T22:36:11ZengAyandegan Institute of Higher Education,International Journal of Research in Industrial Engineering2783-13372717-29372020-03-0191254510.22105/riej.2020.209020.1104105448Option pricing on sesame price using jump diffusion modelsT. Berhane0M. Adam1G. Awgichew2E. Haile3Department of Mathematics, College of Science, Bahir Dar University, P.O.B 79, Ethiopia.Department of Mathematics, College of Science, Bahir Dar University, P.O.B 79, Ethiopia.Department of Mathematics, College of Science, Bahir Dar University, P.O.B 79, Ethiopia.Department of Mathematics, College of Science, Bahir Dar University, P.O.B 79, Ethiopia.In this paper, we aim at developing a model for option pricing to reduce the risks associated with Ethiopian sesame price fluctuations. The White Humera Gondar Sesame Grade 3 (WHGS3) price, which is recorded from 5 November 2010 to 30 March 2018 at Ethiopia Commodity Exchange (ECX) market, is used to analyze the price fluctuation. The nature of log-returns of the price is asymmetric (positively skewed) and exhibits high kurtosis. We used jump diffusion models for modeling and option pricing of sesame price. The method of maximum likelihood is applied to estimate the parameters of the models. We used the Root Mean Square Error (RMSE) to test the goodness of fitting for the two models to the data. This test indicates that the models fit the data well. The techniques of analytical and Monte Carlo simulation are used to find the call option pricing of WHGS3 sesame price. From the results, we concluded that Double Exponential Jump Diffusion (DEJD) model is more efficient than Merton’s model for modeling and option pricing of this sesame price.http://www.riejournal.com/article_105448_c58f68ce716fb003111baee20f9be1db.pdfjump diffusion modeloption pricingkurtosisskewnessrisk-neutral measurewhgs3 sesame price |
| spellingShingle | T. Berhane M. Adam G. Awgichew E. Haile Option pricing on sesame price using jump diffusion models International Journal of Research in Industrial Engineering jump diffusion model option pricing kurtosis skewness risk-neutral measure whgs3 sesame price |
| title | Option pricing on sesame price using jump diffusion models |
| title_full | Option pricing on sesame price using jump diffusion models |
| title_fullStr | Option pricing on sesame price using jump diffusion models |
| title_full_unstemmed | Option pricing on sesame price using jump diffusion models |
| title_short | Option pricing on sesame price using jump diffusion models |
| title_sort | option pricing on sesame price using jump diffusion models |
| topic | jump diffusion model option pricing kurtosis skewness risk-neutral measure whgs3 sesame price |
| url | http://www.riejournal.com/article_105448_c58f68ce716fb003111baee20f9be1db.pdf |
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