The Pricing Model of Taiwanese Gold Option with the Short-Rate Model

• Main Authors: Tai-Huan Hsieh, 謝岱桓
• Other Authors: 湯美玲
• Format: Others
• Language: en_US
• Published: 2016
• Online Access: http://ndltd.ncl.edu.tw/handle/6qm4h3

碩士 === 國立虎尾科技大學 === 財務金融系碩士班 === 104 === According to the underlying asset of Taiwanese Gold Option (TGO), the TGO price will encounter currency risk. It means that the payoff function is similar as Quanto option. Generally speaking, the stochastic process of Quanto option’s underlying asset is assumed to follow a standard Brownian motion, and its’ interest rate is assumed to be constant. These assumptions are unsuitable. To improve the TGO pricing model, this paper has three purposes as follow: 1. To develop the first model, the stochastic process of logarithm gold price is assumed to follow Ornstein – Uhlenbeck model. Using the Quanto option model to evaluate this model. 2. The second model increases the other factor, stochastic interest rate, which is assumed to follow Ornstein – Uhlenbeck model. And replace the risk-free rate by Zero Coupon Bond. 3. The first one and second one was compared, and we simulate the price by VBA code. We found that the price of MTGO model was close with settlement price.