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Month: February 2017

The Employment Of Financial Engineering Instruments For Hedging Purposes

The Employment Of Financial Engineering Instruments For Hedging Purposes; Private agricultural companies face several risks resulting from price fluctuations, particularly share prices, so it was a duty on these companies use hedging with financial engineering strategy for the purpose of making the risk at the lowest settled opinion that the adoption of this Rubix Project Brian Morgan strategy is the adoption of strategies and tools derivatives within the framework of financial engineering, as follows :

Financial Options
Financial Options

First, the application of hedge options strategy:
Will be the application of this strategy is the adoption of bilateral binomial model for a period of one and two terms:
A: One of the options pricing for: The One Period
It is known on this model that it uses to estimate the actual options and called duo or binomial, because it is assumed in the second period of time to have the price set one value from two different values, depending on the assumptions of this model range are:

Free rate risk, which is equal to the stability (10%), which represents the interest payments by these special on fixed deposits and agricultural companies.

Possible lending or borrowing rate risk-free.
No taxes or exchange or the margin requirements mandated.
Investors can use short selling of any securities.

And tries to find the application of this model in the Iraqi Special Agricultural corporate environment, as the use was, and still is limited to efficient financial markets.

It is the table (1) note the use of the bilateral model for one, as it represents the column (1) share in the private agricultural companies price, and the column (2) represents the strike price agreed upon, which according to Rubix Project Trading company shares by 90% from current prices within the column (1) , an approach adopted for the percentage of the previous studies on the Iraqi Special contribute to the environment in earlier times ratio, and pointed columns (4.3) to the amount of rise and fall, which was (0.10 to 0.0, 10) and this could be the column calculation (6, 5), and another for the purposes of the adoption of equations, which illustrate the rising share price decline:

SU = S (1 + U) ………… (1)
Or the price is reduced by a percentage D becomes its price:
SD = S (1 + D) ………… (2)
To apply it to buy stock option, assuming that the option price is C and the price of the agreed implementation it is E and when the implementation date, the option value either to rise and become CU or fall and become a CD Since the option price at the end of the period represents a real value, so it can express that equations following cases:
CU = Max S (1 + U) – E ………… (3)
CD = Max S (1 + D) – E …………. (4)
Seen from the equation (3) that the option price will rise because the share price upon execution S (1 + U) is greater than the exercise price E is therefore in the interest of the call option holder to implement the agreement and to make profit represents the difference between the stock price at the date of execution and the agreed strike price attic, quite the contrary, in the equation (4) the value of which may be negative, since the option has no negative value, then the value will be the last equation equal to zero because the option buyer is obliged to implement.
The fair theoretical option value per period, which represents the last column of the matrix, it has made all private agricultural companies build a portfolio were mostly lower than the right one with the exception of the Middle East for the fish, which has achieved value right per superiority of (2.646).
We conclude from the foregoing, that can be developed mathematical models to adopt the Iraqi Special Agricultural corporate environment, including dual-binomial model for the period and the one who can be when used to reach fair value of the theory of choice.
It is noticeable, too, that the Middle East for the fish, which achieved the highest value of fair theory of choice was the price of its shares is the highest percentage of the price of the shares of agricultural companies, hence we infer that the relationship between the option price in the financial markets and the price of the stock in the market is always direct correlation.

B: pricing options for two Rubix Project Brian Morgan consecutive terms: The Two Period Model
It is known that stock prices are characterized by relatively stable always be prone always rise or fall, and that sometimes gets to bring the share price rise in the first period and then another rise in the second period, and here was to determine the nature of this paragraph to take these variables into account to two terms of time periods ((2 Year.
Upon a closer look at the table (2), containing options pricing for two terms using the binary model, it shows that the rise and fall within the column (4.3) was calculated for two terms and by (0.10), and this is what settled the opinion within the previous studies related mainly based on Empty the yield of the risks of interest on fixed accounts in private banks, which amount to their rates by (0.10) a year, and then possible to calculate the height of the stock under the equation and the two terms, has said research show that the share price will either rise or fall, and that means having two possible occurrence of one of them in the future, if the share price rose in the first period to SU then rose again in the second period

The table shows (3) how to determine the hedge, which includes the shares of private agricultural companies price of a portfolio, because it is an important element in the calculation of the portfolio, and the fair value of theoretical option of one of the two, and can not be fair theoretical option value of the adoption of the two terms in this area, so that determine portfolio must be for a period of one (years), for example, then the other column (h), which represents a package of shares comes amounted to (1) here, with less to be a million or a thousand or less depending on the nature of the wallet