**Commenced**in January 2007

**Frequency:**Monthly

**Edition:**International

**Paper Count:**2748

# Search results for: Leland option pricing models.

##### 2748 Implied Adjusted Volatility by Leland Option Pricing Models: Evidence from Australian Index Options

**Authors:**
Mimi Hafizah Abdullah,
Hanani Farhah Harun,
Nik Ruzni Nik Idris

**Abstract:**

With the implied volatility as an important factor in financial decision-making, in particular in option pricing valuation, and also the given fact that the pricing biases of Leland option pricing models and the implied volatility structure for the options are related, this study considers examining the implied adjusted volatility smile patterns and term structures in the S&P/ASX 200 index options using the different Leland option pricing models. The examination of the implied adjusted volatility smiles and term structures in the Australian index options market covers the global financial crisis in the mid-2007. The implied adjusted volatility was found to escalate approximately triple the rate prior the crisis.

**Keywords:**
Implied adjusted volatility,
Financial crisis,
Leland
option pricing models.

##### 2747 A Dynamic Hybrid Option Pricing Model by Genetic Algorithm and Black- Scholes Model

**Authors:**
Yi-Chang Chen,
Shan-Lin Chang,
Chia-Chun Wu

**Abstract:**

**Keywords:**
genetic algorithm,
Genetic-BS,
option pricing model.

##### 2746 Derivation of Fractional Black-Scholes Equations Driven by Fractional G-Brownian Motion and Their Application in European Option Pricing

**Authors:**
Changhong Guo,
Shaomei Fang,
Yong He

**Abstract:**

**Keywords:**
European option pricing,
fractional Black-Scholes
equations,
fractional G-Brownian motion,
Taylor’s series of fractional
order,
uncertain volatility.

##### 2745 Basket Option Pricing under Jump Diffusion Models

**Authors:**
Ali Safdari-Vaighani

**Abstract:**

**Keywords:**
Radial basis function,
basket option,
jump diffusion,
RBF-PUM.

##### 2744 Robust Numerical Scheme for Pricing American Options under Jump Diffusion Models

**Authors:**
Salah Alrabeei,
Mohammad Yousuf

**Abstract:**

**Keywords:**
Integral differential equations,
American options,
jump–diffusion model,
rational approximation.

##### 2743 Pricing European Options under Jump Diffusion Models with Fast L-stable Padé Scheme

**Authors:**
Salah Alrabeei,
Mohammad Yousuf

**Abstract:**

**Keywords:**
Integral differential equations,
L-stable methods,
pricing European options,
Jump–diffusion model.

##### 2742 An Asymptotic Formula for Pricing an American Exchange Option

**Authors:**
Hsuan-Ku Liu

**Abstract:**

In this paper, the American exchange option (AEO) valuation problem is modelled as a free boundary problem. The critical stock price for an AEO is satisfied an integral equation implicitly. When the remaining time is large enough, an asymptotic formula is provided for pricing an AEO. The numerical results reveal that our asymptotic pricing formula is robust and accurate for the long-term AEO.

**Keywords:**
Integral equation,
asymptotic solution,
free boundary problem,
American exchange option.

##### 2741 The Use of Artificial Neural Network in Option Pricing: The Case of S and P 100 Index Options

**Authors:**
Zeynep İltüzer Samur,
Gül Tekin Temur

**Abstract:**

Due to the increasing and varying risks that economic units face with, derivative instruments gain substantial importance, and trading volumes of derivatives have reached very significant level. Parallel with these high trading volumes, researchers have developed many different models. Some are parametric, some are nonparametric. In this study, the aim is to analyse the success of artificial neural network in pricing of options with S&P 100 index options data. Generally, the previous studies cover the data of European type call options. This study includes not only European call option but also American call and put options and European put options. Three data sets are used to perform three different ANN models. One only includes data that are directly observed from the economic environment, i.e. strike price, spot price, interest rate, maturity, type of the contract. The others include an extra input that is not an observable data but a parameter, i.e. volatility. With these detail data, the performance of ANN in put/call dimension, American/European dimension, moneyness dimension is analyzed and whether the contribution of the volatility in neural network analysis make improvement in prediction performance or not is examined. The most striking results revealed by the study is that ANN shows better performance when pricing call options compared to put options; and the use of volatility parameter as an input does not improve the performance.

**Keywords:**
Option Pricing,
Neural Network,
S&P 100 Index,
American/European options

##### 2740 Hybrid Equity Warrants Pricing Formulation under Stochastic Dynamics

**Authors:**
Teh Raihana Nazirah Roslan,
Siti Zulaiha Ibrahim,
Sharmila Karim

**Abstract:**

A warrant is a financial contract that confers the right but not the obligation, to buy or sell a security at a certain price before expiration. The standard procedure to value equity warrants using call option pricing models such as the Black–Scholes model had been proven to contain many flaws, such as the assumption of constant interest rate and constant volatility. In fact, existing alternative models were found focusing more on demonstrating techniques for pricing, rather than empirical testing. Therefore, a mathematical model for pricing and analyzing equity warrants which comprises stochastic interest rate and stochastic volatility is essential to incorporate the dynamic relationships between the identified variables and illustrate the real market. Here, the aim is to develop dynamic pricing formulations for hybrid equity warrants by incorporating stochastic interest rates from the Cox-Ingersoll-Ross (CIR) model, along with stochastic volatility from the Heston model. The development of the model involves the derivations of stochastic differential equations that govern the model dynamics. The resulting equations which involve Cauchy problem and heat equations are then solved using partial differential equation approaches. The analytical pricing formulas obtained in this study comply with the form of analytical expressions embedded in the Black-Scholes model and other existing pricing models for equity warrants. This facilitates the practicality of this proposed formula for comparison purposes and further empirical study.

**Keywords:**
Cox-Ingersoll-Ross model,
equity warrants,
Heston model,
hybrid models,
stochastic.

##### 2739 The Martingale Options Price Valuation for European Puts Using Stochastic Differential Equation Models

**Authors:**
H. C. Chinwenyi,
H. D. Ibrahim,
F. A. Ahmed

**Abstract:**

In modern financial mathematics, valuing derivatives such as options is often a tedious task. This is simply because their fair and correct prices in the future are often probabilistic. This paper examines three different Stochastic Differential Equation (SDE) models in finance; the Constant Elasticity of Variance (CEV) model, the Balck-Karasinski model, and the Heston model. The various Martingales option price valuation formulas for these three models were obtained using the replicating portfolio method. Also, the numerical solution of the derived Martingales options price valuation equations for the SDEs models was carried out using the Monte Carlo method which was implemented using MATLAB. Furthermore, results from the numerical examples using published data from the Nigeria Stock Exchange (NSE), all share index data show the effect of increase in the underlying asset value (stock price) on the value of the European Put Option for these models. From the results obtained, we see that an increase in the stock price yields a decrease in the value of the European put option price. Hence, this guides the option holder in making a quality decision by not exercising his right on the option.

**Keywords:**
Equivalent Martingale Measure,
European Put Option,
Girsanov Theorem,
Martingales,
Monte Carlo method,
option price valuation,
option price valuation formula.

##### 2738 Multi-Stakeholder Road Pricing Game: Solution Concepts

**Authors:**
Anthony E. Ohazulike,
Georg Still,
Walter Kern,
Eric C. van Berkum

**Abstract:**

A road pricing game is a game where various stakeholders and/or regions with different (and usually conflicting) objectives compete for toll setting in a given transportation network to satisfy their individual objectives. We investigate some classical game theoretical solution concepts for the road pricing game. We establish results for the road pricing game so that stakeholders and/or regions playing such a game will beforehand know what is obtainable. This will save time and argument, and above all, get rid of the feelings of unfairness among the competing actors and road users. Among the classical solution concepts we investigate is Nash equilibrium. In particular, we show that no pure Nash equilibrium exists among the actors, and further illustrate that even “mixed Nash equilibrium" may not be achievable in the road pricing game. The paper also demonstrates the type of coalitions that are not only reachable, but also stable and profitable for the actors involved.

**Keywords:**
Road pricing game,
Equilibrium problem with equilibrium constraint (EPEC),
Nash equilibrium,
Game stability.

##### 2737 Potentials and Influencing Factors of Dynamic Pricing in Business: Empirical Insights of European Experts

**Authors:**
Christopher Reichstein,
Ralf-Christian Härting,
Martina Häußler

**Abstract:**

**Keywords:**
E-commerce,
empirical research,
experts,
Dynamic Pricing (DP),
influencing factors,
potentials.

##### 2736 A Study on the Relation of Corporate Governance and Pricing for Initial Public Offerings

**Authors:**
Chei-Chang Chiou,
Sen-Wei Wang,
Yu-Min Wang

**Abstract:**

**Keywords:**
Artificial neural networks,
corporate governance,
initial public offerings.

##### 2735 Joint Optimization of Pricing and Advertisement for Seasonal Branded Products

**Authors:**
Mohammad Modarres,
Shirin Aslani

**Abstract:**

**Keywords:**
Advertising,
Dynamic programming,
Dynamic
pricing,
Promotion.

##### 2734 Investigating the Effective Parameters in Determining the Type of Traffic Congestion Pricing Schemes in Urban Streets

**Authors:**
Saeed Sayyad Hagh Shomar

**Abstract:**

**Keywords:**
Congestion pricing,
demand management,
flat toll,
variable toll.

##### 2733 Optimization of Transfer Pricing in a Recession with Reflection on Croatian Situation

**Authors:**
Jasminka Radolović

**Abstract:**

**Keywords:**
Documentation,
Methods,
Tax Optimization,
Transfer Pricing

##### 2732 Bail-in Capital: The New Box

**Authors:**
Manu Krishnan,
Phil Jacoby

**Abstract:**

**Keywords:**
CoCo,
Contingent capital,
Bank Capital,
Tier1
Capital

##### 2731 The Proof of Analogous Results for Martingales and Partial Differential Equations Options Price Valuation Formulas Using Stochastic Differential Equation Models in Finance

**Authors:**
H. D. Ibrahim,
H. C. Chinwenyi,
A. H. Usman

**Abstract:**

Valuing derivatives (options, futures, swaps, forwards, etc.) is one uneasy task in financial mathematics. The two ways this problem can be effectively resolved in finance is by the use of two methods (Martingales and Partial Differential Equations (PDEs)) to obtain their respective options price valuation formulas. This research paper examined two different stochastic financial models which are Constant Elasticity of Variance (CEV) model and Black-Karasinski term structure model. Assuming their respective option price valuation formulas, we proved the analogous of the Martingales and PDEs options price valuation formulas for the two different Stochastic Differential Equation (SDE) models. This was accomplished by using the applications of Girsanov theorem for defining an Equivalent Martingale Measure (EMM) and the Feynman-Kac theorem. The results obtained show the systematic proof for analogous of the two (Martingales and PDEs) options price valuation formulas beginning with the Martingales option price formula and arriving back at the Black-Scholes parabolic PDEs and vice versa.

**Keywords:**
Option price valuation,
Martingales,
Partial Differential Equations,
PDEs,
Equivalent Martingale Measure,
Girsanov Theorem,
Feyman-Kac Theorem,
European Put Option.

##### 2730 Numerical Methods versus Bjerksund and Stensland Approximations for American Options Pricing

**Authors:**
Marasovic Branka,
Aljinovic Zdravka,
Poklepovic Tea

**Abstract:**

Numerical methods like binomial and trinomial trees and finite difference methods can be used to price a wide range of options contracts for which there are no known analytical solutions. American options are the most famous of that kind of options. Besides numerical methods, American options can be valued with the approximation formulas, like Bjerksund-Stensland formulas from 1993 and 2002. When the value of American option is approximated by Bjerksund-Stensland formulas, the computer time spent to carry out that calculation is very short. The computer time spent using numerical methods can vary from less than one second to several minutes or even hours. However to be able to conduct a comparative analysis of numerical methods and Bjerksund-Stensland formulas, we will limit computer calculation time of numerical method to less than one second. Therefore, we ask the question: Which method will be most accurate at nearly the same computer calculation time?

**Keywords:**
Bjerksund and Stensland approximations,
Computational analysis,
Finance,
Options pricing,
Numerical methods.

##### 2729 A Zero-Cost Collar Option Applied to Materials Procurement Contracts to Reduce Price Fluctuation Risks in Construction

**Authors:**
H. L. Yim,
S. H. Lee,
S. K. Yoo,
J. J. Kim

**Abstract:**

**Keywords:**
Construction materials,
Supply chain management,
Procurement,
Payment,
Collar option

##### 2728 Pricing Strategy Selection Using Fuzzy Linear Programming

**Authors:**
Elif Alaybeyoğlu,
Y. Esra Albayrak

**Abstract:**

Marketing establishes a communication network between producers and consumers. Nowadays, marketing approach is customer-focused and products are directly oriented to meet customer needs. Marketing, which is a long process, needs organization and management. Therefore strategic marketing planning becomes more and more important in today’s competitive conditions. Main focus of this paper is to evaluate pricing strategies and select the best pricing strategy solution while considering internal and external factors influencing the company’s pricing decisions associated with new product development. To reflect the decision maker’s subjective preference information and to determine the weight vector of factors (attributes), the fuzzy linear programming technique for multidimensional analysis of preference (LINMAP) under intuitionistic fuzzy (IF) environments is used.

**Keywords:**
IF Sets,
LINMAP,
MAGDM,
Marketing.

##### 2727 Solving Partially Monotone Problems with Neural Networks

**Authors:**
Marina Velikova,
Hennie Daniels,
Ad Feelders

**Abstract:**

**Keywords:**
Mixture models,
monotone neural networks,
partially monotone models,
partially monotone problems.

##### 2726 Transmission Pricing based on Voltage Angle Decomposition

**Authors:**
M. Oloomi-Buygi,
M. Reza Salehizadeh

**Abstract:**

**Keywords:**
Deregulation,
Power electric markets,
Transmission
pricing methodologies,
decoupled Newton-Raphson power flow.

##### 2725 A Nodal Transmission Pricing Model based on Newly Developed Expressions of Real and Reactive Power Marginal Prices in Competitive Electricity Markets

**Authors:**
Ashish Saini,
A.K. Saxena

**Abstract:**

In competitive electricity markets all over the world, an adoption of suitable transmission pricing model is a problem as transmission segment still operates as a monopoly. Transmission pricing is an important tool to promote investment for various transmission services in order to provide economic, secure and reliable electricity to bulk and retail customers. The nodal pricing based on SRMC (Short Run Marginal Cost) is found extremely useful by researchers for sending correct economic signals. The marginal prices must be determined as a part of solution to optimization problem i.e. to maximize the social welfare. The need to maximize the social welfare subject to number of system operational constraints is a major challenge from computation and societal point of views. The purpose of this paper is to present a nodal transmission pricing model based on SRMC by developing new mathematical expressions of real and reactive power marginal prices using GA-Fuzzy based optimal power flow framework. The impacts of selecting different social welfare functions on power marginal prices are analyzed and verified with results reported in literature. Network revenues for two different power systems are determined using expressions derived for real and reactive power marginal prices in this paper.

**Keywords:**
Deregulation,
electricity markets,
nodal pricing,
social welfare function,
short run marginal cost.

##### 2724 The Non-Uniqueness of Partial Differential Equations Options Price Valuation Formula for Heston Stochastic Volatility Model

**Authors:**
H. D. Ibrahim,
H. C. Chinwenyi,
T. Danjuma

**Abstract:**

An option is defined as a financial contract that provides the holder the right but not the obligation to buy or sell a specified quantity of an underlying asset in the future at a fixed price (called a strike price) on or before the expiration date of the option. This paper examined two approaches for derivation of Partial Differential Equation (PDE) options price valuation formula for the Heston stochastic volatility model. We obtained various PDE option price valuation formulas using the riskless portfolio method and the application of Feynman-Kac theorem respectively. From the results obtained, we see that the two derived PDEs for Heston model are distinct and non-unique. This establishes the fact of incompleteness in the model for option price valuation.

**Keywords:**
Option price valuation,
Partial Differential Equations,
Black-Scholes PDEs,
Ito process.

##### 2723 Analysis and Evaluation of the Public Responses to Traffic Congestion Pricing Schemes in Urban Streets

**Authors:**
Saeed Sayyad Hagh Shomar

**Abstract:**

Traffic congestion pricing in urban streets is one of the most suitable options for solving the traffic problems and environment pollutions in the cities of the country. Unlike its acceptable outcomes, there are problems concerning the necessity to pay by the mass. Regarding the fact that public response in order to succeed in this strategy is so influential, studying their response and behavior to get the feedback and improve the strategies is of great importance. In this study, a questionnaire was used to examine the public reactions to the traffic congestion pricing schemes at the center of Tehran metropolis and the factors involved in people’s decision making in accepting or rejecting the congestion pricing schemes were assessed based on the data obtained from the questionnaire as well as the international experiences. Then, by analyzing and comparing the schemes, guidelines to reduce public objections to them are discussed. The results of reviewing and evaluating the public reactions show that all the pros and cons must be considered to guarantee the success of these projects. Consequently, with targeted public education and consciousness-raising advertisements, prior to initiating a scheme and ensuring the mechanism of the implementation after the start of the project, the initial opposition is reduced and, with the gradual emergence of the real and tangible benefits of its implementation, users’ satisfaction will increase.

**Keywords:**
Demand management,
international experiences,
traffic congestion pricing,
public acceptance,
public objection.

##### 2722 Using Exponential Lévy Models to Study Implied Volatility patterns for Electricity Options

**Authors:**
Pinho C.,
Madaleno M.

**Abstract:**

**Keywords:**
Calibration,
Electricity Markets,
Implied Volatility,
Lévy Models,
Options on Futures,
Pricing

##### 2721 Optimal Route Policy in Air Traffic Control with Competing Airlines

**Authors:**
Siliang Wang,
Minghui Wang

**Abstract:**

This work proposes a novel market-based air traffic flow control model considering competitive airlines in air traffic network. In the flow model, an agent based framework for resources (link/time pair) pricing is described. Resource agent and auctioneer for groups of resources are also introduced to simulate the flow management in Air Traffic Control (ATC). Secondly, the distributed group pricing algorithm is introduced, which efficiently reflect the competitive nature of the airline industry. Resources in the system are grouped according to the degree of interaction, and each auctioneer adjust s the price of one group of resources respectively until the excess demand of resources becomes zero when the demand and supply of resources of the system changes. Numerical simulation results show the feasibility of solving the air traffic flow control problem using market mechanism and pricing algorithms on the air traffic network.

**Keywords:**
Air traffic control,
Nonlinear programming,
Marketmechanism,
Route policy.

##### 2720 Passive and Active Spatial Pendulum Tuned Mass Damper with Two Tuning Frequencies

**Authors:**
W. T. A. Mohammed,
M. Eltaeb,
R. Kashani

**Abstract:**

The first bending modes of tall asymmetric structures in the two lateral X and Y-directions have two different natural frequencies. To add tuned damping to these bending modes, one needs to either a) use two pendulum-tuned mass dampers (PTMDs) with one tuning frequency, each PTMD targeting one of the bending modes, or b) use one PTMD with two tuning frequencies (one in each lateral directions). Option (a), being more massive, requiring more space, and being more expensive, is less attractive than option (b). Considering that the tuning frequency of a pendulum depends mainly on the pendulum length, one way of realizing option (b) is by constraining the swinging length of the pendulum in one direction but not in the other; such PTMD is dubbed passive Bi-PTMD. Alternatively, option (b) can be realized by actively setting the tuning frequencies of the PTMD in the two directions. In this work, accurate physical models of passive Bi-PTMD and active PTMD are developed and incorporated into the numerical model of a tall asymmetric structure. The model of PTMDs plus structure is used for a) synthesizing such PTMDs for particular applications and b) evaluating their damping effectiveness in mitigating the dynamic lateral responses of their target asymmetric structures, perturbed by wind load in X and Y-directions. Depending on how elaborate the control scheme is, the active PTMD can either be made to yield the same damping effectiveness as the passive Bi-PTMD of the same size or the passive Bi-TMD twice as massive as the active PTMD.

**Keywords:**
Active tuned mass damper,
high-rise building,
multi-frequency tuning,
vibration control.

##### 2719 An Adverse Model for Price Discrimination in the Case of Monopoly

**Authors:**
Daniela Elena Marinescu,
Ioana Manafi,
Dumitru Marin

**Abstract:**

**Keywords:**
Adverse selection,
asymmetric information,
informational rent,
nonlinear pricing,
optimal contract