COMPARE THE VOLATILITY OF THE DERIVATIVE WARRANTS OF AOT STOCK AT EACH PERIOD WITH THE BINOMIAL OPTION PRICING MODEL

  • เจี้ยม จันทร์อนันต์
  • ธนโชติ บุญวรโชติ
Keywords: Binomial Option Pricing Model, Historical Volatility, Thai Derivative Warrant, Tracking Error

Abstract

The purpose of this study is to compare the historical volatility in the period of 1 month, 3 months, 1 year, and 3 years. How long is the appropriate time to calculate the value of Derivative warrants of AOT with Binomial Option Pricing Model based on 3-year historical data from 2 January 2014 until 4 May 2018.

The study found that the historical volatility of 3 years would provide a tracking error of the Derivative Warrant (DW) price less than the period of 1 year, 3 months and 1 month, respectively. Because Binomial Option Pricing Model used in DW valuation, there are limits on the ability of PC to create a number of state, so the author uses Binomial 20 branches, which will be produced in 230 states, and in the general PC. However, the price of DW generated by the Binomial model is approximately 31% - 79% of the actual DW price. Of course, the higher the number of DWs, the more accurate the DW. However, an increase in DW prices is likely due to the higher historical volatility resulting from longer historical volatility data, resulting in lower tracking errors. That's not the reason for accuracy of historical volatility itself.

Published
2018-09-01
Section
Engineering and Technology Articles

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