The Pricing of Asian Options Using Monte Carlo Simulation (Case Study: Soybean Meal)

Document Type : Research Paper

Authors

1 Ph.D. Student of Agricultural Economics

2 Professor of Agricultural Economics

Abstract

The use of new financial instruments, and specifically option contracts, as a tool for risk management and Create Profitability, can help to boom exchanges and reduce the problems of the agricultural sector. Despite price fluctuations of agricultural products, it can be said from a variety of options contracts, an Asian Option can play a more effective part in reducing the risk of these contracts. According to this issue, the aim of this study is to determine the price of Asian Option contract for soybean meal. Monte Carlo simulation method was used to determine the price of Option. Required information includes historical data on the weekly price of soybean meal in the years 2013-16. The results show that this option rather than a simple European Option (Black-Scholes model) is cheaper. In addition to the standard Monte Carlo method, the control variates and antithetic variates methods were used to reduce the variance simulation. The results indicate that the control variates in variance reduction Monte Carlo simulation method has a very good performance and significantly reduce the variance.

Keywords

Main Subjects

References

Abdollahi Ezzatabadi, M. And Najafi, Bhd (1382). Investigating the Possibility of Using Futures Markets and Optional Dealing to Reducing Price fluctuations in Agricultural Products in Iran: A Case Study of Pistachio Product. Agricultural Economics and Development, 11 (41 and 42), 25-1.
Animal Tradition Support Company (1395). www.iransalal.com
Boyle, Ph & Potapchik, A. (2008) Price and sensitivities of Asian options: A survey. In surance: Mathematics and Economics, 42, 189-211.
Carr, P. & Madan, D. (1999) Option Valuation Using The Fast Fourier Transform. Journal of Computational Finance, 2(40), 61-73.
Chung, S.F., and Wong, H.Y. (2014) Analytical pricing of discrete arithmetic Asian options with mean reversion and jump. Journal of Banking & Finance, Accepted Manuscript.
Fusai, G., Marena, M. and Roncorono, A. (2008) Analytical pricing of discretely monitored Asian-style options: Theory and application to commodity markets. Journal of Banking & Finance, 32, 2033-2045.
Hull, J.C. (2009). Fundamentals Of Futures & Options Markets. 7th Edition.
Iran Commodity Exchange Co., Brief Report on Future Contract of Soybean Meal (1393). www.ime.co.ir
Jaakko, R., Samu, K., Markus, K. and Tuomas, R. (2014) The pricing of Asian commodity options. Aalto University School of Science, Seminar on Case Studies in Operations Research, Mat-2.4177.
Kemna, A., & Vorst, A. (1990) A pricing method for options based on average asset values. Journal of Banking and Finance, 14, 113–130.
Kimiagari, AS And Afarideh Sani, O. (2008) A Collaborative Method for Disclosure Pricing Based on Two Black-Scholes and Double Tree Models (A Case Study of the Stock Market of Iran). International Journal of Industrial Engineering and Production Management, Iran University of Science and Technology, 19 (4), 127-119.
Levy, E. (1992) Pricing European average rate currency options. Journal of International Money and Finance, 11, 474–491.
Nebavi Cheshmi, SA And Qasemi Chali, c. (1393) Application of Binomial Tree in Calculating Risk Sensitivity Parameters and Discount Price on Stock Exchanges. Management Quarterly. 11th year (34), 101119.
Soleimani Sarvestani, h. And Ebrahimi, SA (1391), Binomial Tree Method for Asian Options in the Jump Model, Third Conference on Financial Mathematics and Applications, Semnan, Semnan University.
Turnbull, S. & Wakeman, L. (1991) A quick algorithm for pricing European average options. Journal of Financial and Quantitative Analysis, 26, 377–389.
United States Department of Agriculture (USDA). (2015) <www.usda.gov>
Yahisada, m And Hassannejad, M. (2005) Feasibility Study on Trading Option in Iranian Capital Market. Message from management. (17 and 18), 107-85.
Zhanh, H. (2009) Pricing Asian Options using Monte Carlo Methods. Project Report, Uppsala University.

Files

Share

How to cite

Statistics