Options Sellers Gain the Extra Profits: The "Mark-Up Interest" Opinion

The standpoint of this paper is the "Mark-Up Interest" on Options. The Mark-Up Interest is regarded as the reward on the hedging portfolio to compensate for possible losses. For presenting this, Options market prices are decomposed into the Fair-game Options Prices and the Mark-Up Interest...

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Bibliographic Details
Published in:Tai Da Guan Li Lun Cong 2009-06, Vol.19 (2), p.57
Main Authors: Jui-Pin Fu, Son-Nan, Chen, Ting-Pin Wu, 傅瑞彬, 陳松男, 吳庭斌
Format: Article
Language:chi ; eng
Subjects:
Hedging
Market prices
Options markets
Securities prices
Volatility
Online Access:Get full text
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Summary:The standpoint of this paper is the "Mark-Up Interest" on Options. The Mark-Up Interest is regarded as the reward on the hedging portfolio to compensate for possible losses. For presenting this, Options market prices are decomposed into the Fair-game Options Prices and the Mark-Up Interests. The Options pricing model formed with the Mark-Up Interest, Put-Call Parity, Implied Underlying Price, and Guessed Volatility is used to solve the internal inconsistence caused by the Implied Volatility Smiles. Therefore, the justness of the options market prices could be estimated with the Mark-Up Interests under different scenarios. The result will help the risk manager to do market making and hedging. The empirical results based on the Options on Taiwan Stock Exchange Weighted Stock Index (TXO) in this paper are as follows: The trading days to expiry, Moneyness, and Guessed Volatility are the factors affecting the Mark-Up Interests.
ISSN:1018-1601
2410-2490