A strengthened solution to option manipulation

Thanks to the reduced price and less exposition to sudden crashes or price hikes, the Asian option is among the most favorable hedging instruments that are hard to be manipulated, in both the commodity market and executive compensation plan. Since the creation of the option, the main focus has been...

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Main Authors: Aslam, Bilal, Zhang, Changyong
Format: Journal Article
Published: University of Toronto Press 2022
Online Access:http://hdl.handle.net/20.500.11937/88247
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author Aslam, Bilal
Zhang, Changyong
author_facet Aslam, Bilal
Zhang, Changyong
author_sort Aslam, Bilal
building Curtin Institutional Repository
collection Online Access
description Thanks to the reduced price and less exposition to sudden crashes or price hikes, the Asian option is among the most favorable hedging instruments that are hard to be manipulated, in both the commodity market and executive compensation plan. Since the creation of the option, the main focus has been more on how to price it accurately while much less on how to explore deeper the benefits that the option offers. In this paper, a new type of path-dependent option, referred to as the average-Asian option, is introduced to reduce further the volatility of the underlying price risk and minimize option manipulation threat. The price is proved to be less than that of the standard option. It is additionally shown by numerical results that, when granted at the money, the proposed option is on average about 49.32% and 5.45% cheaper than the standard and Asian options, respectively. Furthermore, the option is less sensitive than the Asian counterpart, at both the front-end and the back-end price manipulation.
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spelling curtin-20.500.11937-882472023-04-14T03:09:36Z A strengthened solution to option manipulation Aslam, Bilal Zhang, Changyong Thanks to the reduced price and less exposition to sudden crashes or price hikes, the Asian option is among the most favorable hedging instruments that are hard to be manipulated, in both the commodity market and executive compensation plan. Since the creation of the option, the main focus has been more on how to price it accurately while much less on how to explore deeper the benefits that the option offers. In this paper, a new type of path-dependent option, referred to as the average-Asian option, is introduced to reduce further the volatility of the underlying price risk and minimize option manipulation threat. The price is proved to be less than that of the standard option. It is additionally shown by numerical results that, when granted at the money, the proposed option is on average about 49.32% and 5.45% cheaper than the standard and Asian options, respectively. Furthermore, the option is less sensitive than the Asian counterpart, at both the front-end and the back-end price manipulation. 2022 Journal Article http://hdl.handle.net/20.500.11937/88247 10.1080/03155986.2022.2044222 University of Toronto Press fulltext
spellingShingle Aslam, Bilal
Zhang, Changyong
A strengthened solution to option manipulation
title A strengthened solution to option manipulation
title_full A strengthened solution to option manipulation
title_fullStr A strengthened solution to option manipulation
title_full_unstemmed A strengthened solution to option manipulation
title_short A strengthened solution to option manipulation
title_sort strengthened solution to option manipulation
url http://hdl.handle.net/20.500.11937/88247