Forthcoming and Online First Articles

International Journal of Financial Markets and Derivatives

International Journal of Financial Markets and Derivatives (IJFMD)

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International Journal of Financial Markets and Derivatives (5 papers in press)

Regular Issues

  • Finite Difference Solutions of the CEV PDE   Order a copy of this article
    by Nawdha Thakoor 
    Abstract: This work studies the valuation of European options under the constant elasticity of variance model. The model generalises the Black-Scholes framework for option pricing by incorporating a local instantaneous volatility term which is a function of the stock price. The model has the ability to fit certain implied volatility structures exhibited by market option prices, but the computation of the closed-form European option formula is not always stable and can be largely inaccurate for some parameter ranges because of the difficulties associated with the computation of the non-central chi-square distribution in the valuation formula. As an alternative to one line of research which aims at accelerating and stabilising the analytical price computation, we study finite difference techniques to obtain European option prices and associated hedging parameters. It is numerically demonstrated that a direct discretisation of the pricing equation in combination with an exponential integrator in time performs better than other schemes based on Crank-Nicolson discretisations of two transformed problems, one posed on an infinite domain and the other on a finite domain.
    Keywords: option pricing; constant elasticity of variance; CEV; European options; finite difference scheme; exponential time differencing.
    DOI: 10.1504/IJFMD.2023.10050793
     
  • Investigation of financial markets performance due to coronavirus outbreak: EGARCH and bivariate regression approach   Order a copy of this article
    by Alireza Rokhsari, Neda Doodman, Akbar Esfahanipour 
    Abstract: The emergence of COVID-19 since December 2019 has dramatically affected financial markets and economies across the world. This paper aims to investigate the detrimental effect of COVID-19, which caused the financial crisis worldwide. The returns and volatilities of some major capital markets of different countries have been calculated and examined by the EGARCH method along with some principal commodities such as oil, gold, and bitcoin. We also examine the relationship between different financial securities and the number of cases of COVID-19 in the world using the bivariate regression model. We perform this study at 6-time intervals before and after the pandemic. Our findings demonstrate that some countries have taken the best policies to contain the virus. Several others have taken some measures and initiatives to uphold the businesses and their markets, which will alleviate the negative impact of the outbreak on their economy.
    Keywords: financial crisis; financial securities; COVID-19; EGARCH; bivariate regression model.
    DOI: 10.1504/IJFMD.2022.10046513
     
  • Do shocks to Islamic stock index prices have transitory effects?   Order a copy of this article
    by Muneer Shaik 
    Abstract: The primary objective of this study is to investigate whether shocks to Islamic stock index prices have transitory or permanent effects by means of structural break unit root tests. The study conducts a comprehensive empirical work on weekly and monthly frequency data of 12 major global Islamic stock indices spread across developed and emerging nations like the USA, Turkey, Qatar, Oman, Indonesia, Malaysia, Thailand, India, Taiwan, China, World and Asia Pacific index. Overall, our study finds that the shocks to Islamic stock index prices have only transitory effects for both monthly and weekly data except for the Thailand sharia stock index which has a permanent effect only in the case of weekly data. We also associate the identified break dates with major global economic, political and financial events. The study is particularly essential for risk management and practitioners who develop forecast models based on Islamic indices.
    Keywords: unit root tests; structural breaks; permanent effects; transitory effects; weak form efficiency; Islamic shariah stock index.
    DOI: 10.1504/IJFMD.2022.10046512
     
  • Pricing of bond options in India   Order a copy of this article
    by Sunrita Chaudhuri, Alok Pandey 
    Abstract: Bond options are widely used for managing interest rate risks. Bond options were introduced in India in December 2019. Various bond option pricing models are used by practitioners in the market. This study prices a European call option on 10-Year G-Sec using three models, the Jamshidian's option pricing formula based on Vasicek's model, the Black's option pricing model and Black, Derman and Toy's no arbitrage model. The results show that the option prices are different for different models. The study concludes that volatility of interest rates is an important consideration in each of the models and needs to be standardised to get comparable results.
    Keywords: bond option pricing; Jamshidian's option pricing formula; Black's option pricing model; Black; Derman and Toy model.
    DOI: 10.1504/IJFMD.2022.10050466
     
  • Testing the equality of Nifty 50 stocks' volatility risk using correlated F-ratio   Order a copy of this article
    by G.S. David Sam Jayakumar, W. Samuel, A. Sulthan 
    Abstract: This article introduces a modified version of rescaling the scale and shape parameters of McKay's bivariate gamma distribution and this considered to be the McKay's bivariate chi-square distribution (MBCHSQD). The marginals are univariate chi-square distribution with different degrees of freedom. Furthermore, conditional distributions and constants of the conditionals, generating functions are also derived. The distribution of correlated F-ratio is derived and the percentage points are computed at 5% and 1% level. Two-dimensional smooth curves are used to visualise the shape of derived densities graphically. The proposed F-distribution is applied in testing the equality of variances between two correlated Nifty 50 stocks when the Government of India in 2016 announced the scheme of demonetisation, in which the financial institutions with diverse industrial background in India got affected. Therefore, in order to test the equality of variance, the returns of Nifty 50 stocks are considered during pre and post-demonetisation periods in India.
    Keywords: McKay's bivariate gamma distribution; McKay's bivariate chi-square distribution; moments; characteristic functions; entropy; Pearson's correlation; correlated F-ratio.
    DOI: 10.1504/IJFMD.2022.10050467