An Analysis on the Stochastic Process underlying KOSPI200 Index Oprions Focused on Jumps Process

2015 ◽  
Vol 23 (2) ◽  
pp. 183-205
Author(s):  
Young Ho Eom ◽  
Woon Wook Jang
Keyword(s):  
Stochastic Process ◽  
Financial Crisis ◽  
Option Pricing ◽  
Stochastic Processes ◽  
Stochastic Volatility ◽  
Good Option ◽  
Index Options ◽  
Crisis Period ◽  
Empirical Results

This paper investigates empirically the modelling issues for the stochastic processes underlying KOSPI200 index options. Empirical results show that we need to incorporate two factor stochastic volatility processes to have a good option pricing performance. However, the number of the leverage channel is not an important issue for the modelling of the KOSPI200 index options. Our results also show that the models with finite activity large jumps outperform that with infinite activity small jumps for the financial crisis period. On the while, for the pre-crisis period, there is no clear superiority or inferiority between both jumps models.

scholarly journals The cross-market efficiency of the Italian derivatives market

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Izidin El Kalak ◽  
Robert Hudson
Keyword(s):  
Financial Crisis ◽  
Market Efficiency ◽  
Options Market ◽  
Index Options ◽  
Content Type ◽  
No Arbitrage ◽  
Crisis Period ◽  
Ex Post ◽  
The Cross ◽  
The Impact

Purpose This study aims to examine the cross-market efficiency of the FTSE/MIB index options contracts traded on the Italian derivatives market (IDEM) during a period including the financial crisis between 1st October 2007 and 31st December 2012 using daily option prices. Design/methodology/approach Two fundamental no-arbitrage conditions were tested: the lower boundary condition (LBC) and the put–call parity (PCP) condition while taking into account the role of transaction costs in mitigating the number of violations reported. Ex post tests of LBC and PCP revealed a low incidence of mispricing in this market. Furthermore, to check the robustness of the results obtained by the ex post tests, ex ante tests were applied to PCP violations occurring within a one-day lag. Findings The results showed a significant drop in the number of profitable arbitrage strategies. The findings obtained from all these tests generally support the cross-market efficiency of the Italian index options market during the sample period, though some violations were occasionally reported. Overall, the number and monetary value of the violations reported declined during the post-financial crisis period compared to those during the financial crisis period. Research limitations/implications This study can be extended to test the relationships between arbitrage profitability and other factors such as the moneyness (in the money, out of the money, at the money) of options and the maturity of options. Options market efficiency tests can be conducted such as call and put spreads, box spreads and put/call convexities (butterfly spreads). Originality/value There are several factors that influenced the decision to test the Italian index options market. First, the limited number of studies conducted on this market. Second, the fact that the two main studies on this market are relatively old, which makes it interesting to test the efficiency of this market with respect to a new set of data, taking into account the introduction of the Euro and the impact of the recent financial crisis on this market and whether the market efficiency hypothesis holds during the period of crisis. Third, it is important to consider the effect of the new rules applied to this market.

scholarly journals Excessive credit growth or the catching up process: The case of central, eastern, and southeastern European countries

2015 ◽  
Vol 60 (206) ◽  
pp. 7-44
Author(s):  
Dusan Stojanovic ◽  
Danilo Stojanovic
Keyword(s):  
Financial Crisis ◽  
Private Sector ◽  
Empirical Analysis ◽  
Credit Growth ◽  
Crisis Period ◽  
Empirical Results ◽  
Catching Up ◽  
Out Of Sample ◽  
Hp Filter ◽  
Strong Expansion

Most CESEE countries had an impressive credit growth prior to the outbreak of the financial crisis in 2008. Nevertheless, that experience has taught us that the strong expansion of private sector credit must not be ignored. In an attempt to investigate whether the rapid credit growth was a result of the catching-up process or was a risky process with well-known consequences, we performed empirical analysis by applying statistical (HP filter) and econometric (pooled OLS, fixed effect OLS, and PMG) approaches. The empirical results of both out-of-sample and in-sample approaches suggest that in the pre-crisis period excessive credit growth in terms of higher actual than estimated credit growth was recorded for the majority of the countries observed. Compared to the out of-sample approach, in-sample estimates, which turned out to be more reliable, indicate that the pre-crisis growth was less pronounced and that over the post-crisis period actual credit growth fluctuated around the estimated growth, pointing to the fact that the former was in line with movements in its fitted values.

A Kaleidoscopic Study of Pricing Performance of Stochastic Volatility Option Pricing Models: Evidence from Recent Indian Economic Turbulence

2013 ◽  
Vol 38 (2) ◽  
pp. 61-80 ◽  
Author(s):  
Vipul Kumar Singh ◽  
Pushkar Pachori
Keyword(s):  
Stochastic Process ◽  
Option Pricing ◽  
Closed Form ◽  
Stochastic Volatility ◽  
Heston Model ◽  
Percentage Error ◽  
Testing Time ◽  
Indian Economy ◽  
Black Scholes ◽  
Garch Process

A whole host of researchers have modeled volatility as a non-constant stochastic process, based on the principle that volatility follows a stochastic process whose parameters are not directly observable in the market. The objective of this research paper is to empirically investigate the forecasting performance of three most dominant models of this species namely, Hull-White (1988), Heston�s (1993), and Heston-Nandi GARCH (2000) option pricing model. These three models have been collaterally compared and contrasted against Black-Scholes and market for pricing S&P CNX Nifty 50 index option of India. The Hull-White model not only warrants a range of stochastic volatility specifications but also incorporates correlation of volatility of asset return and its price changes. The closed form Heston�s (1993) model explicitly and elaborately communicates non-lognormal distribution of the assets return, leverage effect, and mean-reverting property of volatility. The model of Heston-Nandi, also in closed form, successfully incorporates variance of asset returns as a range of GARCH process. It strongly permits correlation between returns of the spot asset and variance and also technically accepts multiple lags in the dynamics of the GARCH process. To decide, determine, and delineate the effectiveness of stochastic models against the Black-Scholes and market, the current paper adopts a structured approach of relative error price, viz., percentage mean error (PME) and mean absolute percentage error (MAPE). The most turbulent period of the Indian economy � January 1, 2008 to December 31, 2008 — was considered appropriate for testiing the suggested model. It was a testing time for the Indian economy as well as a critical period questioning the sustainability of all financial products/models and challenging their fundamental platform depicted as equity market. How to safeguard investors� faith and at least protect their investments if not multiply returns in the face of such financial hardships remained a burning question for all thinkers and experts on the subject. Data pertaining to the specific period of such drastic disturbance was analysed with the help of the proposed models. After rigorous churning of specific data taken across various models, the Heston model was found to outperform and surpass other models.

scholarly journals Did Foreign Investors Destabilize the Korean Equity Market during the Asian Crisis?

2006 ◽  
Vol 7 (1) ◽  
pp. 75-86 ◽  
Author(s):  
Gab-Je Jo
Keyword(s):  
Financial Crisis ◽  
Equity Market ◽  
Asian Crisis ◽  
Domestic Investment ◽  
Investment Activity ◽  
Foreign Investors ◽  
Equity Investment ◽  
Crisis Period ◽  
Empirical Results ◽  
Korean Market

This paper investigates the behavior of foreign equity investment in the Korean market over the period of 1995 through 2001. The main questions examined in this paper are: Is foreign equity investment is relatively more reversible than domestic investment in the wake of financial crisis? And do foreign equity investors tend to increase the volatility of the market more than domestic investors? The empirical results indicate that equity investment activity by foreigners was more reversible than domestic investment for the duration of financial crisis period. Furthermore, I have found evidence that foreign equity investors tend to cause higher volatility in the market than domestic investors.

The Determinants of Merger Withdrawals’ Abnormal Returns in The Australian Market

2015 ◽  
pp. 89-110 ◽  
Author(s):  
Thuy Nguyen Thu ◽  
Giang Dao Thi Thu ◽  
Hoang Truong Huy
Keyword(s):  
Financial Crisis ◽  
Event Study ◽  
Abnormal Returns ◽  
Market Response ◽  
Crisis Period ◽  
Valuation Effects ◽  
Event Study Method ◽  
Private And Public ◽  
Method Of Payment ◽  
The Impact

This paper examines the abnormal returns in merger withdrawals in Australia, especially distinguishing the market response between private and public targets. We also study the determinants of those abnormal returns, including the method of payment and the impact of financial crisis periods. Using the event study method, we document that in the Australian context, the announced withdrawal of mergers involving private targets creates significantly negative valuation effects in comparison with the valuation effects in withdrawal of mergers involving public targets. We also find that a financial crisis period strongly affects abnormal returns of merger withdrawals. However, the method of payment does not have any impact on the abnormal returns.

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