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    A strengthened solution to option manipulation

    88069.pdf (19.56Mb)
    Access Status
    Open access
    Authors
    Aslam, Bilal
    Zhang, Changyong
    Date
    2022
    Type
    Journal Article
    
    Metadata
    Show full item record
    Citation
    Aslam, B. and Zhang, C. 2022. A strengthened solution to option manipulation. INFOR: Information Systems and Operational Research.
    Source Title
    INFOR: Information Systems and Operational Research
    DOI
    10.1080/03155986.2022.2044222
    ISSN
    0315-5986
    Faculty
    Global Curtin
    School
    Global Curtin
    URI
    http://hdl.handle.net/20.500.11937/88247
    Collection
    • Curtin Research Publications
    Abstract

    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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