Financial Markets Essay Example | Topics and Well Written Essays - 1000 words

Financial Markets - Essay Example Under financial discussions & research, options fall under a particular style or family. Theoretically speaking, the style or the family of options refers to a class that signifies the category into which that particular option comes under. The options are generally verified & studied by analyzing the dates on which these options may be exercised. Such options come under the purview of the European & American Styles. There are many more types of options available. The similarity between all of them is that they come under the 'Vanilla Options' wherein, the options are evaluated on the basis of the payoff. There are also numerous Non-Vanilla options such as the Russian & the Asian options. The proposed research is aimed at studying the various arbitrage options that fall under the Asian option. Under the proposed research, there are a number of issues that are planned to be studied. The first & the foremost would be to perform an analysis & assessment of the various techniques that have been devised for assessing the Asian option. The study of these techniques is very important in order to assess each one for its effectiveness & compare & contrast between all of them for their numerous features & capabilities. ... The reason why this topic is being studied is that though there are numerous techniques available for determining the payback, none of them is able to provide a clear-cut & a fully observable solution. This is because the evaluation of the Partial Differential Equations (PDE) involves a certain degree of adjustments in terms of the areas being evaluated under the integrals that varies with each technique. Nevertheless, numerous options have been devised that tend to improve the degree of efficiency and accuracy with which these options can be worked out.Some of the techniques that are proposed to be covered under the proposed research are discussed below: Roger & Shi's one-dimensional Model: This model is suitable for both fixed & floating Asian options. This method uses the Strike & the average value of a stock over a time period for the evaluation of the PDE. But there are certain problems with this technique that need to be investigated. Jan vecer technique: this method falls under the traded account option wherein the gains & losses from trading are evaluated using a special Partial Differential Equation. The PDE for this model takes into account the rate of reinvestment as well as the trading strategy with the intent of maximizing the price of agreement. Under the Asian option, the payoff is calculated as a function of the stock & the strike value. Monte-Carlo Approach: this approach is adopted when the dimensional space is larger than usual wherein the share of price is evaluated by the Black & Scholes model while the price of an asset has been given Lapeyre & Temam. This model utilized the standard Brownian motion & additionally