a r t i c l e i n f o This paper examines the relationship between option trading activity and stock market volatility. Although the option market is uniquely suited for trading on volatility information, there is little analysis on how trading activity in this market is linked to stock price volatility. The bulk of the discussion tends to focus on whether trading activity in the stock market i...

Understanding and measuring determinants of bid-ask spreads is decisive to clarifying the efficiency of the microstructure of any exchange and general market liquidity. This paper examines the market microstructure of a low liquidity, market maker driven option market, the relations to the underlying securities’ market and the challenges of pricing liquidity. Comparing empirical results with pr...

In this paper, the impacts of an incentive-based Demand Response, i.e., Ancillary Service DR (ASDR), and a price-based DR, i.e., Time of Use (ToU), are revealed in a restructured power system which has some wind farms. This network is designed based on the pre-emptive market which is a day-ahead market with a balancing market prognosis. It is a proper mechanism to deal with the stochastic natur...

In this paper, Black Scholes’s pricing model was developed to study American option on future contracts of Brent oil. The practical tests of the model show that market priced option contracts as future contracts less than what model did, which mostly represent option contracts with price rather than without price. Moreover, it suggests call option rather than put option. Using t hypothesis test...

This paper investigates a dynamic CAPM in which investors may trade in put option contracts which are zero in net supply. In each period, stock and option prices are endogenously and simultaneously determined by market clearing in the respective markets. We investigate how these endogenously formed option prices impact on prices and portfolio allocations. The introduction of a put-option market...

In recent years, there has been an increasing interest in studying constrained variational problems with a fractional diffusion. One of the motivations comes from mathematical finance: jumpdiffusion processes where incorporated by Merton [14] into the theory of option evaluation to introduce discontinuous paths in the dynamics of the stock’s prices, in contrast with the classical lognormal diff...

A simple exotic option (floor on rolled deposit) is studied in the shifted log-normal Libor Market (LMM) and Gaussian HJM models. The shifted log-normal LMM exhibits a controllable volatility skew. An explicit approach is used for both models. Using approximations the price in the LMM is obtained without Monte Carlo simulation. The more precise approximation uses a twisted version of the perdic...