A new concept of reliability system and applications in finance

This paper proposes and explores an extension of the usual k-out-of-n systems, where the components of the system are assumed to play different roles in determining its failure and with not necessarily i.i.d. components lifetimes. The theoretical reliability framework is compared with the standard weighted k-out-of-n systems, and it is actually adopted for the development of a financial derivative model whose outcome depends on the crossing of some predefined barriers of a set of assets. More precisely, such a derivative is presented as a coherent system whose components are the assets of the basket.

Pricing of American Carbon Emission Derivatives and Numerical Method under the Mixed Fractional Brownian Motion

This paper studies the pricing of American carbon emission derivatives and its numerical method under the mixed fractional Brownian motion. To capture the long memory properties such as self-similarity and long-range dependence in the price process, we proposed a model based on a fractional Black–Scholes, which is more in line with the actual characteristics of the option market. We have outlined a power penalty approach using parabolic variation inequality and linear complementarity (LCP) which arises from mixed fractional Brownian motion. In addition, we introduced a nonuniform grid-based modification of the fitted finite volume method for numerical solution. Numerically, we show the impact of Hurst exponent on the pricing and analyze the convergence rates of the proposed penalty method. In conclusion, since mfBm is a well-developed mathematical model of strongly correlated stochastic processes, this model will be an efficient model for pricing carbon financial derivative.

A Comparative Analysis of Monte Carlo and Quasi-Monte Carlo Methods in Financial Derivative Pricing

The main purpose of this dissertation is to study Monte Carlo (MC) and Quasi-Monte Carlo (QMC) methods for pricing financial derivatives. We estimate the Price of European as well as various path dependent options like Asian, Barrier and American options by using these methods. We also compute the numerical results by the above mentioned methods and compare them graphically as well with the help of the MATLAB Coding. Dhaka Univ. J. Sci. 69(1): 1-6, 2021 (January)

DERIVATIVE MARKETS-USING OPTIONS TRADING STRATEGY IN MONGOLIAN STOCK MARKET

This study identifies some opportunities to introduce derivative instruments based on the practical experience of other countries, and provides some estimates of the implementation of derivative market mechanisms, pricing, and trading strategies. KEY WORDS: Financial derivative, option, and spread

Legal regulation of OTC financial derivatives trading

Author explains legal regulation of OTC financial derivative trading on the leading financial markets (USA and EU) as well as shows uniform regulations developed in international legal environment, and separately explains legal framework of the said question in positive Serbian law. Author elaborates main current legal issues related to financial derivatives transactions on the OTC market to which domestic participants are exposed during the operations in Serbian territory but also in cross-border operations. Finally, the author provides concrete proposals for further improvement of disputable legal issues by amending the regulatory framework in line with comparative legal regulations and regulations developed by the international community. Purpose of this article is to bring the attention of legal experts in Serbia to certain inefficient solutions in currently applicable legal regulations related to financial derivatives on the OTC Market, as well as to serve to legal practice as guidance for practical solving the disputable legal issues in particular transactions which have become frequent also for domestic participants on the capital market.

Evaluating Significant Risks in International Trade of E7 Economies With AHP Methodology

The purpose of this study is to evaluate the risks encountered in the international trade process. E7 economies are included in the study. For this purpose, six criteria that should be taken into consideration are determined by considering similar studies in the literature. In the analysis process of the study, AHP method is used to identify which type of risk encountered in the international trade process is more important. In this process, opinions are received from three different experts on the subject. It is concluded that the exchange rate risk is the most important in this process. In addition to this situation, political risk and payment risk are other important factors for this situation. On the other side, it is also determined that documentary risk and carriage risk have lower role in comparison with others. Accordingly, it is essential for companies to take the necessary measures. In this context, it is possible to decrease the exchange rate volatility by using financial derivative products.

Discounted Optimal Stopping of a Brownian Bridge, with Application to American Options under Pinning

Mathematically, the execution of an American-style financial derivative is commonly reduced to solving an optimal stopping problem. Breaking the general assumption that the knowledge of the holder is restricted to the price history of the underlying asset, we allow for the disclosure of future information about the terminal price of the asset by modeling it as a Brownian bridge. This model may be used under special market conditions, in particular we focus on what in the literature is known as the “pinning effect”, that is, when the price of the asset approaches the strike price of a highly-traded option close to its expiration date. Our main mathematical contribution is in characterizing the solution to the optimal stopping problem when the gain function includes the discount factor. We show how to numerically compute the solution and we analyze the effect of the volatility estimation on the strategy by computing the confidence curves around the optimal stopping boundary. Finally, we compare our method with the optimal exercise time based on a geometric Brownian motion by using real data exhibiting pinning.