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- Quant Exotic Series: Opportunity in Asian Markets💰
Quant Exotic Series: Opportunity in Asian Markets💰
This paper discusses the importance of options in the current financial market and focuses specifically on the Asian option, which is a popular type of exotic option. The authors propose a new type of Asian option that they have jointly designed to better meet the demands of the market. The paper provides a clear definition and comprehensive explanation of this new Asian option, highlighting its unique features compared to the regular Asian option. To assess the effectiveness of the proposed option, the authors use real stock prices and reasonable assumptions, analyzing the data with Stata. They compare the performance of the new Asian option with the regular Asian option numerically and validate its ability to mitigate risk. The paper aims to provide a thorough understanding of the proposed option and offers insights for option issuers looking to create new options.
The passage explains the concept of an optimized Asian option, highlighting its advantages over the traditional Asian option in terms of risk resistance. In today's complex financial market, particularly in China where effective supervision is lacking and artificial manipulation is common, there is a need for options that exhibit lower volatility.
In the optimized Asian option, the return on the option's expiration date is determined by the average price of the underlying stock over a specific period of time, rather than relying on the stock price on the exercise date. This approach reduces the impact of short-term fluctuations and extreme values, making the option less volatile and more resistant to risk.
By removing extreme values of stock prices during the option contract period, the optimized option achieves its goal of lower volatility. These extreme values may arise due to artificial manipulation or other exceptional circumstances that can distort the true value of the stock. By filtering out these extremes, the option's performance becomes more stable and reliable.
Another advantage of the optimized Asian option is its lower price compared to other identical ordinary options. This affordability makes it more attractive to investors, enhancing their enthusiasm and participation in the financial market.
Overall, the optimized Asian option aims to improve the efficiency of the financial market by minimizing the interference caused by extreme values and emergencies. By reducing volatility and offering a more stable investment tool, this option provides a viable alternative in an environment where risk and market manipulation are prevalent.
Concept: “An Asian option becomes the proposed option if and only if the option belongs to the average strike option, which uses the average price of the underlying asset at a certain time during the option contracts period to replace the strike price when it is due for delivery. The average price is only based on prices that lie between the upper and lower boundaries. Mathematically, the payoff model for the call option and put option from the proposed option can be established in the discrete form below, respectively. “
def calculate_payoff(underlying_prices, strike_price, upper_boundary, lower_boundary, option_type):
average_price = sum(price for price in underlying_prices if lower_boundary <= price <= upper_boundary) / len(underlying_prices)
if option_type == 'call':
payoff = max(average_price - strike_price, 0)
elif option_type == 'put':
payoff = max(strike_price - average_price, 0)
else:
raise ValueError("Invalid option type. Expected 'call' or 'put'.")
return payoff
The features and advantages of the optimized Asian option compared to the traditional Asian option in the context of a complex and potentially manipulated financial market, particularly in China. Let's break down the key points:
Return Based on Average Price: In the optimized Asian option, the return on the option's expiration date is determined by the average price of the underlying stock over a past period of time, rather than relying solely on the stock price on the exercise date. This approach reduces the impact of short-term fluctuations and provides a more stable basis for determining the option's return.
Better Resistance to Risk: Compared to the traditional Asian option, the optimized Asian option demonstrates improved resistance to risk. By basing the return on the average stock price, it reduces the influence of extreme or manipulated prices, making it more robust against market volatility and potential manipulation.
Addressing Complex Financial Markets: The passage highlights the increasing complexity of today's financial markets and the limited effectiveness of supervision, particularly in China. In such environments, there is a need for options with lower volatility and greater reliability. The optimized Asian option aims to meet this need by mitigating the influence of extreme values and enhancing market efficiency.
Removing Extreme Values: Extreme values of stock prices during the option contract period can distort the true value of the option. By removing these extreme values, the optimized Asian option achieves lower volatility and provides a more accurate representation of the underlying asset's performance.
Lower Price: The optimized Asian option is also characterized by a lower price compared to other ordinary options with similar characteristics. This affordability makes it more attractive to investors and encourages greater participation in the financial market.
Overall, the optimized Asian option addresses the challenges posed by complex financial markets and potential manipulation by providing a more reliable and lower-volatility investment tool. By reducing the interference of extreme values and emergencies, it enhances market efficiency and fosters greater enthusiasm among investors.