Option Pricing on Sesame Price Using Jump Diffusion Models

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Berhane T.; ADAM M.; Awgichew G.; Haile E.

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Journal Paper

Paper Information

Journal: INTERNATIONAL JOURNAL OF RESEARCH IN INDUSTRIAL ENGINEERING Year:2020 | Volume:9 | Issue:1 Page(s): 25-45

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Information Journal Paper

Title

Option Pricing on Sesame Price Using Jump Diffusion Models

Author(s)

Berhane T. | ADAM M. | Awgichew G. | Haile E. | Issue Writer Certificate

Keywords

Jump diffusion model

Option pricing

Kurtosis

Skewness

Risk-neutral measure

WHGS3 sesame price

Abstract

In this paper, we aim at developing a model for Option pricing to reduce the risks associated with Ethiopian sesame price fluctuations. The White Humera Gondar Sesame Grade 3 (WHGS3) price, which is recorded from 5 November 2010 to 30 March 2018 at Ethiopia Commodity Exchange (ECX) market, is used to analyze the price fluctuation. The nature of log-returns of the price is asymmetric (positively skewed) and exhibits high Kurtosis. We used Jump diffusion models for modeling and Option pricing of sesame price. The method of maximum likelihood is applied to estimate the parameters of the models. We used the Root Mean Square Error (RMSE) to test the goodness of fitting for the two models to the data. This test indicates that the models fit the data well. The techniques of analytical and Monte Carlo simulation are used to find the call Option pricing of WHGS3 sesame price. From the results, we concluded that Double Exponential Jump Diffusion (DEJD) model is more efficient than Merton’ s model for modeling and Option pricing of this sesame price.

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APA: Copy

Berhane, T., ADAM, M., Awgichew, G., & Haile, E.. (2020). Option Pricing on Sesame Price Using Jump Diffusion Models. INTERNATIONAL JOURNAL OF RESEARCH IN INDUSTRIAL ENGINEERING, 9(1), 25-45. SID. https://sid.ir/paper/765340/en

Vancouver: Copy

Berhane T., ADAM M., Awgichew G., Haile E.. Option Pricing on Sesame Price Using Jump Diffusion Models. INTERNATIONAL JOURNAL OF RESEARCH IN INDUSTRIAL ENGINEERING[Internet]. 2020;9(1):25-45. Available from: https://sid.ir/paper/765340/en

IEEE: Copy

T. Berhane, M. ADAM, G. Awgichew, and E. Haile, “Option Pricing on Sesame Price Using Jump Diffusion Models,” INTERNATIONAL JOURNAL OF RESEARCH IN INDUSTRIAL ENGINEERING, vol. 9, no. 1, pp. 25–45, 2020, [Online]. Available: https://sid.ir/paper/765340/en

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