Search results for: option pricing model.
7431 A Dynamic Hybrid Option Pricing Model by Genetic Algorithm and Black- Scholes Model
Authors: Yi-Chang Chen, Shan-Lin Chang, Chia-Chun Wu
Abstract:Unlike this study focused extensively on trading behavior of option market, those researches were just taken their attention to model-driven option pricing. For example, Black-Scholes (B-S) model is one of the most famous option pricing models. However, the arguments of B-S model are previously mentioned by some pricing models reviewing. This paper following suggests the importance of the dynamic character for option pricing, which is also the reason why using the genetic algorithm (GA). Because of its natural selection and species evolution, this study proposed a hybrid model, the Genetic-BS model which combining GA and B-S to estimate the price more accurate. As for the final experiments, the result shows that the output estimated price with lower MAE value than the calculated price by either B-S model or its enhanced one, Gram-Charlier garch (G-C garch) model. Finally, this work would conclude that the Genetic-BS pricing model is exactly practical.
Keywords: genetic algorithm, Genetic-BS, option pricing model.Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 2104
7430 Implied Adjusted Volatility by Leland Option Pricing Models: Evidence from Australian Index Options
Authors: Mimi Hafizah Abdullah, Hanani Farhah Harun, Nik Ruzni Nik Idris
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.Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 2837
7429 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:In this paper, fractional Black-Scholes models for the European option pricing were established based on the fractional G-Brownian motion (fGBm), which generalizes the concepts of the classical Brownian motion, fractional Brownian motion and the G-Brownian motion, and that can be used to be a tool for considering the long range dependence and uncertain volatility for the financial markets simultaneously. A generalized fractional Black-Scholes equation (FBSE) was derived by using the Taylor’s series of fractional order and the theory of absence of arbitrage. Finally, some explicit option pricing formulas for the European call option and put option under the FBSE were also solved, which extended the classical option pricing formulas given by F. Black and M. Scholes.
Keywords: European option pricing, fractional Black-Scholes equations, fractional G-Brownian motion, Taylor’s series of fractional order, uncertain volatility.Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 607
7428 Basket Option Pricing under Jump Diffusion Models
Authors: Ali Safdari-Vaighani
Abstract:Pricing financial contracts on several underlying assets received more and more interest as a demand for complex derivatives. The option pricing under asset price involving jump diffusion processes leads to the partial integral differential equation (PIDEs), which is an extension of the Black-Scholes PDE with a new integral term. The aim of this paper is to show how basket option prices in the jump diffusion models, mainly on the Merton model, can be computed using RBF based approximation methods. For a test problem, the RBF-PU method is applied for numerical solution of partial integral differential equation arising from the two-asset European vanilla put options. The numerical result shows the accuracy and efficiency of the presented method.
Keywords: Radial basis function, basket option, jump diffusion, RBF-PUM.Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 955
7427 An Asymptotic Formula for Pricing an American Exchange Option
Authors: Hsuan-Ku Liu
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.Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 1525
7426 Pricing European Options under Jump Diffusion Models with Fast L-stable Padé Scheme
Authors: Salah Alrabeei, Mohammad Yousuf
Abstract:The goal of option pricing theory is to help the investors to manage their money, enhance returns and control their financial future by theoretically valuing their options. Modeling option pricing by Black-School models with jumps guarantees to consider the market movement. However, only numerical methods can solve this model. Furthermore, not all the numerical methods are efficient to solve these models because they have nonsmoothing payoffs or discontinuous derivatives at the exercise price. In this paper, the exponential time differencing (ETD) method is applied for solving partial integrodifferential equations arising in pricing European options under Merton’s and Kou’s jump-diffusion models. Fast Fourier Transform (FFT) algorithm is used as a matrix-vector multiplication solver, which reduces the complexity from O(M2) into O(M logM). A partial fraction form of Pad`e schemes is used to overcome the complexity of inverting polynomial of matrices. These two tools guarantee to get efficient and accurate numerical solutions. We construct a parallel and easy to implement a version of the numerical scheme. Numerical experiments are given to show how fast and accurate is our scheme.
Keywords: Integral differential equations, L-stable methods, pricing European options, Jump–diffusion model.Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 363
7425 Hybrid Equity Warrants Pricing Formulation under Stochastic Dynamics
Authors: Teh Raihana Nazirah Roslan, Siti Zulaiha Ibrahim, Sharmila Karim
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.Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 420
7424 Robust Numerical Scheme for Pricing American Options under Jump Diffusion Models
Authors: Salah Alrabeei, Mohammad Yousuf
Abstract:The goal of option pricing theory is to help the investors to manage their money, enhance returns and control their financial future by theoretically valuing their options. However, most of the option pricing models have no analytical solution. Furthermore, not all the numerical methods are efficient to solve these models because they have nonsmoothing payoffs or discontinuous derivatives at the exercise price. In this paper, we solve the American option under jump diffusion models by using efficient time-dependent numerical methods. several techniques are integrated to reduced the overcome the computational complexity. Fast Fourier Transform (FFT) algorithm is used as a matrix-vector multiplication solver, which reduces the complexity from O(M2) into O(M logM). Partial fraction decomposition technique is applied to rational approximation schemes to overcome the complexity of inverting polynomial of matrices. The proposed method is easy to implement on serial or parallel versions. Numerical results are presented to prove the accuracy and efficiency of the proposed method.
Keywords: Integral differential equations, American options, jump–diffusion model, rational approximation.Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 416
7423 Joint Optimization of Pricing and Advertisement for Seasonal Branded Products
Authors: Mohammad Modarres, Shirin Aslani
Abstract:The goal of this paper is to develop a model to integrate “pricing" and “advertisement" for short life cycle products, such as branded fashion clothing products. To achieve this goal, we apply the concept of “Dynamic Pricing". There are two classes of advertisements, for the brand (regardless of product) and for a particular product. Advertising the brand affects the demand and price of all the products. Thus, the model considers all these products in relation with each other. We develop two different methods to integrate both types of advertisement and pricing. The first model is developed within the framework of dynamic programming. However, due to the complexity of the model, this method cannot be applicable for large size problems. Therefore, we develop another method, called hieratical approach, which is capable of handling the real world problems. Finally, we show the accuracy of this method, both theoretically and also by simulation.
Keywords: Advertising, Dynamic programming, Dynamic pricing, Promotion.Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 1500
7422 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
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 optionsProcedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 2899
7421 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
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.Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 385
7420 Bail-in Capital: The New Box
Authors: Manu Krishnan, Phil Jacoby
Abstract:In this paper, we discuss the paradigm shift in bank capital from the “gone concern" to the “going concern" mindset. We then propose a methodology for pricing a product of this shift called Contingent Capital Notes (“CoCos"). The Merton Model can determine a price for credit risk by using the firm-s equity value as a call option on those assets. Our pricing methodology for CoCos also uses the credit spread implied by the Merton Model in a subsequent derivative form created by John Hull et al . Here, a market implied asset volatility is calculated by using observed market CDS spreads. This implied asset volatility is then used to estimate the probability of triggering a predetermined “contingency event" given the distanceto- trigger (DTT). The paper then investigates the effect of varying DTTs and recovery assumptions on the CoCo yield. We conclude with an investment rationale.
Keywords: CoCo, Contingent capital, Bank Capital, Tier1 CapitalProcedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 1451
7419 An Adverse Model for Price Discrimination in the Case of Monopoly
Authors: Daniela Elena Marinescu, Ioana Manafi, Dumitru Marin
Abstract:We consider a Principal-Agent model with the Principal being a seller who does not know perfectly how much the buyer (the Agent) is willing to pay for the good. The buyer-s preferences are hence his private information. The model corresponds to the nonlinear pricing problem of Maskin and Riley. We assume there are three types of Agents. The model is solved using “informational rents" as variables. In the last section we present the main characteristics of the optimal contracts in asymmetric information and some possible extensions of the model.
Keywords: Adverse selection, asymmetric information, informational rent, nonlinear pricing, optimal contractProcedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 1237
7418 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:This study proposes a materials procurement contracts model to which the zero-cost collar option is applied for heading price fluctuation risks in construction.The material contract model based on the collar option that consists of the call option striking zone of the construction company(the buyer) following the materials price increase andthe put option striking zone of the material vendor(the supplier) following a materials price decrease. This study first determined the call option strike price Xc of the construction company by a simple approach: it uses the predicted profit at the project starting point and then determines the strike price of put option Xp that has an identical option value, which completes the zero-cost material contract.The analysis results indicate that the cost saving of the construction company increased as Xc decreased. This was because the critical level of the steel materials price increasewas set at a low level. However, as Xc decreased, Xpof a put option that had an identical option value gradually increased. Cost saving increased as Xc decreased. However, as Xp gradually increased, the risk of loss from a construction company increased as the steel materials price decreased. Meanwhile, cost saving did not occur for the construction company, because of volatility. This result originated in the zero-cost features of the two-way contract of the collar option. In the case of the regular one-way option, the transaction cost had to be subtracted from the cost saving. The transaction cost originated from an option value that fluctuated with the volatility. That is, the cost saving of the one-way option was affected by the volatility. Meanwhile, even though the collar option with zero transaction cost cut the connection between volatility and cost saving, there was a risk of exercising the put option.
Keywords: Construction materials, Supply chain management, Procurement, Payment, Collar optionProcedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 2394
7417 The Martingale Options Price Valuation for European Puts Using Stochastic Differential Equation Models
Authors: H. C. Chinwenyi, H. D. Ibrahim, F. A. Ahmed
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.Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 504
7416 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
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.Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 1547
7415 Multi-Stakeholder Road Pricing Game: Solution Concepts
Authors: Anthony E. Ohazulike, Georg Still, Walter Kern, Eric C. van Berkum
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.Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 1368
7414 Potentials and Influencing Factors of Dynamic Pricing in Business: Empirical Insights of European Experts
Authors: Christopher Reichstein, Ralf-Christian Härting, Martina Häußler
Abstract:With a continuously increasing speed of information exchange on the World Wide Web, retailers in the E-Commerce sector are faced with immense possibilities regarding different online purchase processes like dynamic price settings. By use of Dynamic Pricing, retailers are able to set short time price changes in order to optimize producer surplus. The empirical research illustrates the basics of Dynamic Pricing and identifies six influencing factors of Dynamic Pricing. The results of a structural equation modeling approach show five main drivers increasing the potential of dynamic price settings in the E-Commerce. Influencing factors are the knowledge of customers’ individual willingness to pay, rising sales, the possibility of customization, the data volume and the information about competitors’ pricing strategy.
Keywords: E-commerce, empirical research, experts, Dynamic Pricing (DP), influencing factors, potentials.Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 1270
7413 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:The purpose of this study is to investigate the relationship between corporate governance and pricing for initial public offerings (IPOs). Empirical result finds that the prediction of pricing of IPOs with corporate governance added can have a rather higher degree of predicting accuracy than that of non governance added during the training and testing samples. Therefore, it can be observed that corporate governance mechanism can affect the pricing of IPOs
Keywords: Artificial neural networks, corporate governance, initial public offerings.Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 1674
7412 Optimal Route Policy in Air Traffic Control with Competing Airlines
Authors: Siliang Wang, Minghui Wang
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.Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 1693
7411 Investigating the Effective Parameters in Determining the Type of Traffic Congestion Pricing Schemes in Urban Streets
Authors: Saeed Sayyad Hagh Shomar
Abstract:Traffic congestion pricing – as a strategy in travel demand management in urban areas to reduce traffic congestion, air pollution and noise pollution – has drawn many attentions towards itself. Unlike the satisfying findings in this method, there are still problems in determining the best functional congestion pricing scheme with regard to the situation. The so-called problems in this process will result in further complications and even the scheme failure. That is why having proper knowledge of the significance of congestion pricing schemes and the effective factors in choosing them can lead to the success of this strategy. In this study, first, a variety of traffic congestion pricing schemes and their components are introduced; then, their functional usage is discussed. Next, by analyzing and comparing the barriers, limitations and advantages, the selection criteria of pricing schemes are described. The results, accordingly, show that the selection of the best scheme depends on various parameters. Finally, based on examining the effective parameters, it is concluded that the implementation of area-based schemes (cordon and zonal) has been more successful in non-diversion of traffic. That is considering the topology of the cities and the fact that traffic congestion is often created in the city centers, area-based schemes would be notably functional and appropriate.
Keywords: Congestion pricing, demand management, flat toll, variable toll.Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 482
7410 Optimization of Transfer Pricing in a Recession with Reflection on Croatian Situation
Authors: Jasminka Radolović
Abstract:Countries in recession, among them Croatia, have lower tax revenues as a result of unfavorable economic situation, which is decrease of the economic activities and unemployment. The global tax base has decreased. In order to create larger state revenues, states use the institute of tax authorities. By controlling transfer pricing in the international companies and using certain techniques, tax authorities can create greater tax obligations for the companies in a short period of time.
Keywords: Documentation, Methods, Tax Optimization, Transfer PricingProcedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 1382
7409 A Performance Model for Designing Network in Reverse Logistic
Authors: S. Dhib, S. A. Addouche, T. Loukil, A. Elmhamedi
Abstract:In this paper, a reverse supply chain network is investigated for a decision making. This decision is surrounded by complex flows of returned products, due to the increasing quantity, the type of returned products and the variety of recovery option products (reuse, recycling, and refurbishment). The most important problem in the reverse logistic network (RLN) is to orient returned products to the suitable type of recovery option. However, returned products orientations from collect sources to the recovery disposition have not well considered in performance model. In this study, we propose a performance model for designing a network configuration on reverse logistics. Conceptual and analytical models are developed with taking into account operational, economic and environmental factors on designing network.
Keywords: Reverse logistics, Network design, Performance model, Open loop configuration.Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 1772
7408 Numerical Methods versus Bjerksund and Stensland Approximations for American Options Pricing
Authors: Marasovic Branka, Aljinovic Zdravka, Poklepovic Tea
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.Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 5867
7407 Pricing Strategy Selection Using Fuzzy Linear Programming
Authors: Elif Alaybeyoğlu, Y. Esra Albayrak
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.Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 2151
7406 Determining Optimal Demand Rate and Production Decisions: A Geometric Programming Approach
Authors: Farnaz G. Nezami, Mir B. Aryanezhad, Seyed J. Sadjadi
Abstract:In this paper a nonlinear model is presented to demonstrate the relation between production and marketing departments. By introducing some functions such as pricing cost and market share loss functions it will be tried to show some aspects of market modelling which has not been regarded before. The proposed model will be a constrained signomial geometric programming model. For model solving, after variables- modifications an iterative technique based on the concept of geometric mean will be introduced to solve the resulting non-standard posynomial model which can be applied to a wide variety of models in non-standard posynomial geometric programming form. At the end a numerical analysis will be presented to accredit the validity of the mentioned model.
Keywords: Geometric programming, marketing, nonlinear optimization, production.Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 1329
7405 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
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.Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 144
7404 Transmission Pricing based on Voltage Angle Decomposition
Authors: M. Oloomi-Buygi, M. Reza Salehizadeh
Abstract:In this paper a new approach for transmission pricing is presented. The main idea is voltage angle allocation, i.e. determining the contribution of each contract on the voltage angle of each bus. DC power flow is used to compute a primary solution for angle decomposition. To consider the impacts of system non-linearity on angle decomposition, the primary solution is corrected in different iterations of decoupled Newton-Raphson power flow. Then, the contribution of each contract on power flow of each transmission line is computed based on angle decomposition. Contract-related flows are used as a measure for “extent of use" of transmission network capacity and consequently transmission pricing. The presented approach is applied to a 4-bus test system and IEEE 30-bus test system.
Keywords: Deregulation, Power electric markets, Transmission pricing methodologies, decoupled Newton-Raphson power flow.Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 1515
7403 Analysis and Evaluation of the Public Responses to Traffic Congestion Pricing Schemes in Urban Streets
Authors: Saeed Sayyad Hagh Shomar
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.Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 532
7402 Elasticity Model for Easing Peak Hour Demand for Metrorail Transport System
Authors: P. K. Sarkar, Amit Kumar Jain
Abstract:The demand for Urban transportation is characterised by a large scale temporal and spatial variations which causes heavy congestion inside metro trains in peak hours near Centre Business District (CBD) of the city. The conventional approach to address peak hour congestion, metro trains has been to increase the supply by way of introduction of more trains, increasing the length of the trains, optimising the time table to increase the capacity of the system. However, there is a limitation of supply side measures determined by the design capacity of the systems beyond which any addition in the capacity requires huge capital investments. The demand side interventions are essentially required to actually spread the demand across the time and space. In this study, an attempt has been made to identify the potential Transport Demand Management tools applicable to Urban Rail Transportation systems with a special focus on differential pricing. A conceptual price elasticity model has been developed to analyse the effect of various combinations of peak and nonpeak hoursfares on demands. The elasticity values for peak hour, nonpeak hour and cross elasticity have been assumed from the relevant literature available in the field. The conceptual price elasticity model so developed is based on assumptions which need to be validated with actual values of elasticities for different segments of passengers. Once validated, the model can be used to determine the peak and nonpeak hour fares with an objective to increase overall ridership, revenue, demand levelling and optimal utilisation of assets.
Keywords: Congestion, differential pricing, elasticity, transport demand management, urban transportation.Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 1557