Option pricing for rice by using Feynman path integral

The options are contracts that give a holder the right to buy or sell an underlying asset at the specific price before or on the expiration date. In return, the holder must pay the premium, the price of an option, to the seller in order to make contracts. As the financial problem occurs with many Th...

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Bibliographic Details
Published in:Journal of physics. Conference series 2021-01, Vol.1719 (1), p.12097
Main Authors: Sawetpiyakul, Panus, Hirunsirisawat, Ekapong, Yoo-Kong, Sikarin, Termsaithong, Teerasit
Format: Article
Language:English
Subjects:
Algorithms
Contracts
Integrals
Monte Carlo simulation
Physics
Pricing
Online Access:Get full text
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Summary:The options are contracts that give a holder the right to buy or sell an underlying asset at the specific price before or on the expiration date. In return, the holder must pay the premium, the price of an option, to the seller in order to make contracts. As the financial problem occurs with many Thai farmers because of the fluctuation of agricultural product price. In this work, we try to price the American put option by using Feynman path integral in order to create the rice price insurance. The numerical procedures are separated into 2 parts. Firstly, the Atlantic path is determined by quasi-European method. Secondly, hybrid lattice Monte-Carlo method is used to simulate the underlying asset price path in order to evaluate the expectation profit of the option, or the premium. Moreover, the volatility rate of rice price is determined. As a result, the premium of American put option for rice is determined, and there is a deviation less than 8% comparing with Monte Carlo valuation with LSM algorithm in these examples. However, the result suggests that in this work's assumption, the option pricing by using Feynman path integral is not effective to be used.
ISSN:1742-6588
1742-6596
DOI:10.1088/1742-6596/1719/1/012097