• Title, Summary, Keyword: pricing

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The Stochastic Volatility Option Pricing Model: Evidence from a Highly Volatile Market

  • WATTANATORN, Woraphon;SOMBULTAWEE, Kedwadee
    • The Journal of Asian Finance, Economics and Business
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    • v.8 no.2
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    • pp.685-695
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    • 2021
  • This study explores the impact of stochastic volatility in option pricing. To be more specific, we compare the option pricing performance between stochastic volatility option pricing model, namely, Heston option pricing model and standard Black-Scholes option pricing. Our finding, based on the market price of SET50 index option between May 2011 and September 2020, demonstrates stochastic volatility of underlying asset return for all level of moneyness. We find that both deep in the money and deep out of the money option exhibit higher volatility comparing with out of the money, at the money, and in the money option. Hence, our finding confirms the existence of volatility smile in Thai option markets. Further, based on calibration technique, the Heston option pricing model generates smaller pricing error for all level of moneyness and time to expiration than standard Black-Scholes option pricing model, though both Heston and Black-Scholes generate large pricing error for deep-in-the-money option and option that is far from expiration. Moreover, Heston option pricing model demonstrates a better pricing accuracy for call option than put option for all level and time to expiration. In sum, our finding supports the outperformance of the Heston option pricing model over standard Black-Scholes option pricing model.

A Study of Restructured Residential Electricity Pricing toward the Competitive Power Market (경쟁체제 도입시 주택용 전기요금개선에 관한 연구)

  • Kim, Min-Jeong
    • The Transactions of The Korean Institute of Electrical Engineers
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    • v.63 no.7
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    • pp.889-895
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    • 2014
  • Korea electric power industry had been under vertical monopoly but is typically getting restructured for free competition. An ideal pricing system under the competitive market system is 'unbundled pricing system' and 'marginal pricing system', but the current pricing system still adheres to the traditional bundled system and the average cost pricing system. Especially, progressive electricity rates for residential use reflect governmental policy-making which is focused on income redistribution & welfare, industrial supports and energy saving. This study proposes new and reasonable residential electricity pricing systems which are Time-Of-Use (TOU) and Real-Time Pricing (RTP) to reflect variations in the wholesale price of electricity. It also presents examples of various tariffs for residential electricity pricing systems.

A Comparative study on the pricing mechanism and social welfare in the Natural Gas Market (국내 천연가스산업의 도매가격결정방식 비교 분석)

  • Namgoong Yoon;Choi Kiryun;Kim Boyung;Lee Kiho
    • Journal of the Korean Institute of Gas
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    • v.2 no.3
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    • pp.18-24
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    • 1998
  • This paper attempts to improve domestic natural gas pricing system, thereby optimizing social welfare. This is done by deriving theoretical frameworks of natural gas pricing, which make use of both Ramsey component pricing rule and Efficient component pricing rule based on the theory of marginal cost. Allocative efficiency and social welfare between gas prices derived from the three pricing mechanism, present Cost-based pricing, Ramsey component pricing rule and Efficient component pricing rule, are analysed and compared in the case study. For the city gas, allocative efficiency of Cost-based pricing is higher than that of Ramsey component pricing rule and Efficient component pricing rule. In contrast, for the natural gas consumed for power generation, allocative efficiency of Cost-based pricing is lower than the other two pricing systems. It also turns out that social welfare is improved by the prices driven from Ramsey component pricing rule and Efficient component pricing rule rather than present Cost-based pricing.

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The Difference in the Performance among Non-linear Pricing Schedules in Medical Examination (건강검진 일반수가 비선형가격체계간 이익비교에 관한 연구)

  • Kwak, Young-Sik;Paik, Soo-Kyung;Yoon, Kyung-Jae
    • Health Policy and Management
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    • v.18 no.3
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    • pp.128-146
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    • 2008
  • Nonlinear pricing abounds in practice because it is a potentially powerful pricing method to explore consumer surplus. The various forms of nonlinear pricing are feasible within a given industry. In this context, it is important for manufacturers and retailers to understand which nonlinear pricing scheme is appropriate to apply in their specific situation and which nonlinear pricing schedule is the most profitable in their market situation. Although the merits of nonlinear pricing are well documented, the attempt to apply nonlinear pricing in medical service has been relatively rare. The researcher aims to try to full this gap by applying a practice-oriented simulation model to health examination data. We compare the sales volumes among nonlinear pricing scheme such as n-block tariff, two-part tariff, and uniform pricing. We found that n-block tariff outperforms two-part tariff and uniform pricing.

First- and Second-best Pricing in Stable Dynamic Models (안정동력학 모형에서 최선 통행료 및 차선 통행료)

  • Park, Koo-Hyun
    • Journal of the Korean Operations Research and Management Science Society
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    • v.34 no.4
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    • pp.123-138
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    • 2009
  • This study examined the first- and second-best pricing by stable dynamics in congested transportation networks. Stable dynamics, suggested by Nesterov and de Palma (2003), is a new model which describes and provides a stable state of congestion in urban transportation networks. The first-best pricing in user equilibrium models introduces user-equilibrium in the system-equilibrium by tolling the difference between the marginal social cost and the marginal private cost on each link. Nevertheless, the second-best pricing, which levies the toll on some, but not all, links, is relevant from the practical point of view. In comparison with the user equilibrium model, the stable dynamic model provides a solution equivalent to system-equilibrium if it is focused on link flows. Therefore the toll interval on each link, which keeps up the system-equilibrium, is more meaningful than the first-best pricing. In addition, the second-best pricing in stable dynamic models is the same as the first-best pricing since the toll interval is separately given by each link. As an effect of congestion pricing in stable dynamic models, we can remove the inefficiency of the network with inefficient Braess links by levying a toll on the Braess link. We present a numerical example applied to the network with 6 nodes and 9 links, including 2 Braess links.

VALUATION FUNCTIONALS AND STATIC NO ARBITRAGE OPTION PRICING FORMULAS

  • Jeon, In-Tae;Park, Cheol-Ung
    • Journal of the Korean Society for Industrial and Applied Mathematics
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    • v.14 no.4
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    • pp.249-273
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    • 2010
  • Often in practice, the implied volatility of an option is calculated to find the option price tomorrow or the prices of, nearby' options. To show that one does not need to adhere to the Black- Scholes formula in this scheme, Figlewski has provided a new pricing formula and has shown that his, alternating passive model' performs as well as the Black-Scholes formula [8]. The Figlewski model was modified by Henderson et al. so that the formula would have no static arbitrage [10]. In this paper, we show how to construct a huge class of such static no arbitrage pricing functions, making use of distortions, coherent risk measures and the pricing theory in incomplete markets by Carr et al. [4]. Through this construction, we provide a more elaborate static no arbitrage pricing formula than Black-Sholes in the above scheme. Moreover, using our pricing formula, we find a volatility curve which fits with striking accuracy the synthetic data used by Henderson et al. [10].

Mobile Internet Pricing: Circuit Pricing versus Packet Pricing

  • Kim, Jeong-Yoo;Lee, Nae-Chan;Kim, Dong-Ju
    • Proceedings of the Korea Technology Innovation Society Conference
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    • pp.3-17
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    • 2001
  • In this paper, we compare the market performances under circuit pricing whereby users are charged based on their length of usage time and under packet pricing whereby users are charged based on the amount of information received. We show that, if packet pricing is introduced, the market price rises contrary to the government's expectation but that the overall social welfare is unambiguously increased because packet pricing reflects the social cost properly while circuit pricing does not. Also, we show that, if delivery of multi-media files requires a much higher speed, a move to packet pricing lowers the price of multi-media transmission, thereby increasing the usage of multimedia data in the absence of congestion, which may not be the case in the presence of congestion.

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A Value-Based Real Time Pricing Under Imperfect Information on Consumer Behavior

  • Kim, Bal-Ho H.
    • Journal of Electrical Engineering and Technology
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    • v.4 no.1
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    • pp.49-54
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    • 2009
  • One of the major challenges confronting a multiservice electric utility is the establishment of the right prices for its services. The key objectives of particular pricing schemes are reasonableness of company earnings, economic efficiency, the responsiveness of supply and of the allocation of sources to the desires of consumers, and maintenance of some degree of competition. This paper proposes a value-based pricing mechanism amenable to the current deregulation situation in electricity market allowing service differentiation. The proposed pricing mechanism can be implemented in a nodal auction model, and can also be applied to direct load control.

Revenue Reconciled Transmission Pricing Using Optimal Power Flow in a Competitive Electricity Market (OPF를 이용한 경쟁적 전력시장에서의 송전가격 수익보정어 관한 연구)

  • Joung, Sang-Houn;Chung, Koo-Hyung;Kim, Bal-Ho
    • Proceedings of the KIEE Conference
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    • pp.624-626
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    • 2003
  • Transmission pricing is one of important issues related to competitive electricity markets since rational pricing scheme ensures a fair competition between this market participants. Transmission pricing scheme is classified briefly into marginal cost pricing and embedded cost pricing. In economic efficiency, marginal cost pricing is more adequate for competitive electricity market. However, this pricing scheme requires revenue reconciliation since it cannot ensure full recovery of Transco's revenue requirements. This paper presents a new revenue reconciliation to maximize social welfare. For this analysis, this paper provides the results applied by various revenue reconciliation methodologies.

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A Universal Pricing Scheme for the WiMAX Services

  • Suk, Seung-Hak;Lee, Hoon;Lee, Kwang-Hui
    • The Journal of Korean Institute of Communications and Information Sciences
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    • v.33 no.5B
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    • pp.334-343
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    • 2008
  • In this work we propose a universal pricing machine, which incorporates a universal pricing framework for the future IEEE802.16 WiMAX service with multiple classes of service. A multimedia service is provided by a QoS provisioning scheme in the WiMAX network and universal pricing means that it can compute the price for any type of service in a unified framework. In the proposed pricing framework we incorporate multiple types of services such as the real time and nonreal time services that are supposed to be provided in the WiMAX network. To that purpose, let us first carry out an analysis on the current pricing scheme of Korean WiMAX service which incorporates only the data size. From that analysis we propose a new pricing scheme for the future WiMAX service that provides different service classes in the network. Via numerical experiment, we verify the implication of the work.