scholarly journals Pricing Chinese Convertible Bonds with Default Intensity by Monte Carlo Method

2019 ◽  
Vol 2019 ◽  
pp. 1-8
Author(s):  
Xin Luo ◽  
Jinlin Zhang
Keyword(s):  
Monte Carlo ◽  
Stock Prices ◽  
Default Risk ◽  
Emerging Market ◽  
Cash Flows ◽  
Convertible Bonds ◽  
Martingale Measure ◽  
Default Intensity ◽  
Long Run ◽  
Two Parameters

This article proposes a new way to price Chinese convertible bonds by the Longstaff-Schwartz Least Squares Monte Carlo simulation. The default intensity and the volatility are the two important parameters, which are difficultly obtained in the emerging market, in pricing convertible bonds. By developing the Merton theory, we find a new effective method to get the theoretical value of the two parameters. In the pricing method, the default risk is described by the default intensity, and a default on a bond is triggered by the bottom Q(T) (default probability) percentile of the simulated stock prices at the maturity date. In the present simulation, a risk-free interest rate is used to discount the cash flows. So, the new pricing model is considered to tally with the general pricing rule under martingale measure. The empirical results of the CEB and the XIG convertible bonds by the proposed method are compared with those obtained by the credit spreads method. It is also found that the theoretical prices calculated by the method proposed in the article fit the market prices well, especially, in the long run tendency.

scholarly journals PENENTUAN HARGA KONTRAK OPSI TIPE ASIA MENGGUNAKAN MODEL SIMULASI NORMAL INVERSE GAUSSIAN (NIG)

2014 ◽  
Vol 3 (3) ◽  
pp. 123
Author(s):  
I PUTU OKA PARAMARTHA ◽  
KOMANG DHARMAWAN ◽  
DESAK PUTU EKA NILAKUSMAWATI
Keyword(s):  
Monte Carlo ◽  
Stock Prices ◽  
Stock Price ◽  
Monte Carlo Model ◽  
Asian Option ◽  
Inverse Gaussian ◽  
Fair Price ◽  
Simulation Accuracy ◽  
Two Parameters ◽  
Normal Inverse Gaussian

The aim to determine of the simulation results and to calculate the stock price of Asian Option with Normal Inverse Gaussian (NIG) method and Monte Carlo method using MATLAB program. Results of both models are compared and selected a fair price. Besides to determine simulation accuracy of the stock price, speed of program execution MATLAB is calculated for both models for time efficiency. The first part, set variabels used to calculate the trajectory of stock prices at time t to simulate the stock price at the time. The second part, simulate the stock price with NIG model. The third part, simulate the stock price with Monte Carlo model. After simulating the stock price, calculated the value of the pay-off of the Asian Option, and then estimate the price of Asian Option by averaging the entire value of pay-off from each iteration. The last part, compare result of both models. The results of this research is price of Asian Option calculated using Monte Carlo simulation and NIG. The rates were calculated using the NIG produce a fair price, because of the pricing contract NIG using four parameters ?, ?, ?, and ?, while Monte Carlo is using only two parameters ? and ?. For execution time of the program, the Monte Carlo model is better in all iterations.

scholarly journals DYNAMICS OF CONSUMER EXPENDITURE AND STOCK MARKET PRICES AND UNCERTAINTY: MALAYSIAN EVIDENCE

2013 ◽  
Vol 58 (04) ◽  
pp. 1350025
Author(s):  
MANSOR H. IBRAHIM ◽  
SIONG HOOK LAW
Keyword(s):  
Stock Market ◽  
Stock Prices ◽  
Stock Price ◽  
Private Consumption ◽  
Emerging Market ◽  
Market Volatility ◽  
Stock Market Volatility ◽  
Consumer Expenditure ◽  
Market Uncertainty ◽  
Long Run

The present paper analyzes the role of stock market, more specifically real stock prices and stock market uncertainty/volatility, on private consumption behavior for an emerging market, Malaysia, using quarterly data from 1991 to 2009. Employing the autoregressive distributed lag approach to cointegration test, the paper establishes a long-run equilibrium that ties private consumption to its determinants — real income, real stock prices, real lending rate, and stock market volatility. In the long run, the presence of the stock market wealth effect is documented. At the same time, the stock market volatility is also noted to depress private consumption particularly when the volatility is at the degree as observed during the Asian crisis. The authors further note the short-run influences of real stock price changes on consumption growth and the adjustment of private consumption to the long-run level when it is modeled in an error-correction setting. Our simple simulation indicates that the drop in the private consumption due to the decline in stock market wealth post-crisis is substantial, amounting to 2.7% of average post-crisis gross domestic product.

Earnings persistence and stock prices: empirical evidence from an emerging market

2014 ◽  
Vol 12 (2) ◽  
pp. 117-134 ◽  
Author(s):  
Varun Dawar
Keyword(s):  
Stock Prices ◽  
Value Relevance ◽  
Emerging Market ◽  
Cash Flows ◽  
Earnings Persistence ◽  
Market Prices ◽  
Content Type ◽  
Book Value ◽  
Panel Data Regression ◽  
Data Regression

Purpose – This study aims to investigate the persistence ability of accounting variables, namely, abnormal earnings, book value, accruals and cash flows over a period of time and their valuation relevance in Indian scenario. Design/methodology/approach – The study utilizes the generalized version of the Ohlson model which links market prices with abnormal earnings, book value and earning components (accruals and cash flows). Fixed-effect panel data regression is used to analyze six years of data on the sample units to determine the persistence and valuation relevance. Findings – The findings provide evidence on the construct of persistence and value relevance of earnings and book value of equity in the Indian context. The findings further confirm that investors in India are fixated on earnings and fail to attend separately to the cash flow and accrual components of earnings while undertaking their investment decisions. Practical implications – The empirical findings of the study will enable the analysts and investors to understand the relevance and persistence of accounting variables in case of an emerging market like India. Originality/value – The study extends the extant literature on value relevance studies in developed markets to an emerging market like India and enriches it in several ways.

scholarly journals Productivity and Stock Returns: 1951 - 2002

2003 ◽  
Author(s):  
A.M. Parhizgari ◽  
Abe Aburachis
Keyword(s):  
Stock Returns ◽  
Stock Prices ◽  
Structural Changes ◽  
Cash Flows ◽  
Economic Time Series ◽  
Stock Market Returns ◽  
Productivity Data ◽  
Common Trend ◽  
Long Run ◽  
Definition Of

There is considerable concern whether the decline in stock market returns will eventually exert negative changes in the productivity data. This paper examines the long run, or the equilibrium, relationship between productivity and stock returns for the 1951-2002 period. It introduces the notion of equilibrium as represented by the co-movements of economic variables in the long run. This notion is viewed to be broader than the economic theory definition of equilibrium that usually means market clearance. Acknowledging that structural changes in economic time series are hard to detect, an alternative approach employing pair-wise and multifactor cointegration along with VAR modeling is employed. Within this framework, the relationships among productivity, stock prices (returns), investment, and corporate cash flows are pair-wise and jointly investigated. The results indicate that productivity and stock prices share a common trend; so do the stock prices and corporate net cash flows. The long-run common trend between investment and stock prices on the other hand is not so clear. The implications of these results for investors and policy-makers are discussed.  

scholarly journals The Turkish stock market integration with oil prices: Cointegration analysis with unknown regime shifts

2013 ◽  
Vol 60 (4) ◽  
pp. 499-513 ◽  
Author(s):  
Umut Halaç ◽  
Taşkın Dilvin ◽  
Çağlı Çağlar
Keyword(s):  
Stock Market ◽  
Stock Prices ◽  
Market Integration ◽  
Structural Breaks ◽  
Emerging Market ◽  
Oil Prices ◽  
Economic Factor ◽  
Cointegration Analysis ◽  
Dynamic Relationship ◽  
Long Run

Oil prices are often considered as a vital economic factor due to the dependence of the world economy on oil. The goal of this paper is to contribute to the literature on the dynamic relationship between oil prices and stock prices under the presence of possible structural breaks in an emerging market, Turkey. The empirical evidence suggests that the oil prices are important in explaining the stock market movements. Stock prices, oil prices and nominal exchange rates are found as cointegrated after taking structural breaks into account. Moreover, results of parameter stability test are consistent with our findings indicating that relationship between series is strong in the long-run. The results are important in the way that they show the global factors are also dominant on the Turkish stock market.

scholarly journals Can Macroeconomic Variables Explain Long Term Stock Market Movements? A Study of Nepali Capital Market

2016 ◽  
Vol 1 (1) ◽  
pp. 26-38 ◽  
Author(s):  
Niranjan Phuyal
Keyword(s):  
Stock Market ◽  
Stock Prices ◽  
Emerging Market ◽  
Wald Test ◽  
Stock Market Index ◽  
Monthly Basis ◽  
Macroeconomic Variables ◽  
Long Run ◽  
Short Run

The quest of whether there is a long-run relation between macroeconomic variables and stock prices has found significant place in literature of finance. An existence of such relation would assure long-term investors a confidence in the market as long as the macroeconomic environment is sound. This study investigated using Johansen’s cointegration method, whether a long-term association of selected macroeconomic variables existed with stock prices in the emerging market like Nepali stock market. For this objective, monthly data from January 2003 to December 2012 were used with a set of six macroeconomic variables and stock market return. The results indicated that the Nepali stock market had a long run equilibrium relationship with a set of macroeconomic variables, like inflation rate, interest rate and remittance flow with the short term disequilibrium corrected by 1.79% on monthly basis. It further showed that there was Granger causality between them. In the short run, the stock market index was affected by the lag values of NEPSE index up to six levels and remittance income, as shown by Wald test. These findings hold practical implications for policy makers, stock market regulators, investors and stock market analysts.Journal of Business and Management Studies Vol.1(1) 2016: 26-38

The value relevance of earnings, cash flows and book values in Egypt

2016 ◽  
Vol 39 (12) ◽  
pp. 1752-1778 ◽  
Author(s):  
Wael Mostafa
Keyword(s):  
Capital Market ◽  
Stock Prices ◽  
Value Relevance ◽  
Emerging Market ◽  
Accounting Information ◽  
Cash Flows ◽  
Apparent Lack ◽  
Content Type ◽  
Market Values ◽  
Book Values

Purpose Motivated by the lack of research on the value relevance of accounting information in the emerging markets of Middle Eastern countries, and the unique institutional and accounting setting in Egypt, this paper aims to investigate the relation between capital market and accounting information in the emerging market of Egypt. Specifically, based on Egyptian data, this study examines the value relevance of earnings, cash flows from operations and book values. Design/methodology/approach To examine the value relevance of the above accounting measures, this study uses statistical associations between accounting information and capital market values: the association between earnings and annual returns; the association between cash flows and accruals, and annual returns; and the association between earnings and book values of equity, and stock prices. Findings The results show that, first, earnings have value relevance. However, earnings changes are significantly more successful than earnings levels in explaining security returns. These results suggest that changes in earnings are largely permanent; hence, earnings follow (close to) a random walk model. Second, contrary to what is stated in the literature, cash flows from operations are not successful in explaining stock returns. This result suggests that cash flows are less important and not value relevant in Egypt compared to the USA or the UK. A possible explanation is that cash flows in Egypt are very volatile (high variance) and not persistent, so the market does not rely on them. Third, individually, both earnings and book values significantly explain stock prices; however, jointly, earnings have incremental explanatory power beyond book values for stock prices whereas book values do not. These results suggest that in Egypt the income statement is much more important than the balance sheet for valuation purposes. Overall, these results are interesting because they do not completely replicate the results from other countries. Practical implications The existence of value relevance for earnings despite the apparent lack of value relevance for cash flows can be interpreted as indicating that accruals are designed to offset and smooth cash flows’ volatility and low value relevance, so that earnings are relatively more persistent and relevant. These results show that earnings potentially are a much more important and informative measure of a firm’s value than cash flows from operations in Egypt. However, we certainly need the cash flows information as an ex-post validation of the prior earnings. Overall, it appears that the investors in Egypt are looking at the accounting data when evaluating the value of the firm, which is a good sign. However, the empirical findings of this paper are discussed. Originality/value This study contributes to the limited research on value relevance of accounting information in the emerging market of Egypt.

Dynamic Relationship between Crude Oil and Stock Prices in India: Before And After the Subprime Financial Crisis 2008

GIS Business ◽  
2019 ◽  
Vol 14 (6) ◽  
pp. 96-104
Author(s):  
P. Sakthivel ◽  
S. Rajaswaminathan ◽  
R. Renuka ◽  
N. R.Vembu
Keyword(s):  
Financial Crisis ◽  
Crude Oil ◽  
Stock Prices ◽  
Oil Prices ◽  
Energy Index ◽  
Data Set ◽  
Dynamic Relationship ◽  
Crude Oil Prices ◽  
Long Run ◽  
Before And After

This paper empirically discovered the inter-linkages between stock and crude oil prices before and after the subprime financial crisis 2008 by using Johansan co-integration and Granger causality techniques to explore both long and short- run relationships.  The whole data set of Nifty index, Nifty energy index, BSE Sensex, BSE energy index and oil prices are divided into two periods; before crisis (from February 15, 2005 to December31, 2007) and after crisis (from January 1, 2008 to December 31, 2018) are collected and analyzed. The results discovered that there is one-way causal relationship from crude oil prices to Nifty index, Nifty energy index, BSE Sensex and BSE energy index but not other way around in both periods. However, a bidirectional causality relationship between BSE Energy index and crude oil prices during post subprime financial crisis 2008. The co-integration results suggested that the absence of long run relationship between crude oil prices and market indices of BSE Sensex, BSE energy index, Nifty index and Nifty energy index before and after subprime financial crisis 2008.

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