Options pricing on the Philippine Stock Exchange Index (PSEI) and volatility trading for hedging and yield enhancement
Date of Publication
4-2019
Document Type
Master's Thesis
Degree Name
Master of Science in Financial Engineering
Subject Categories
Finance and Financial Management
College
Ramon V. Del Rosario College of Business
Department/Unit
Financial Management
Thesis Adviser
Tommy Tui
Defense Panel Chair
Edwin B. Valeroso
Abstract/Summary
This study shows the theoretical pricing of option premiums on the Philippine Stock Exchange Index (PSEi) using the Black-Scholes model. The objective of this study is to create an option chain for PSEi in order to offer investors an extremely useful, versatile and superior financial product that will give them the opportunity to profit and hedge from any market condition and can give a yield which is substantially higher than the yields traders can get from other financial products that are available in the Philippine market.
The Black Scholes model is used to forecast the options premiums for the years 2017 and 2018 for PSEi using the historical closing prices of the underlying asset for the years 2016 and 2017. ARIMA model is used to forecast the conditional mean. While, GARCH model is used to forecast the expected realized volatility. The expected values generated from the ARIMA- GARCH models are used to formulate the option strategies during that period. This study focuses only on short put and call options, calendar spreads and bull put spreads and bear call spreads for the option strategies. The returns from these options strategies are compared to the returns of other equity-based financial products available in the Philippine market.
The results of this study showed that PSEi naked short options yielded a 55.83 percent return for the year 2017 and 44.81 percent return for the year 2018. PSEi calendar spread options yielded a 59.35 percent return for the year 2017 and 61.10 percent for the year 2018. While, PSEi bull put spreads and bear call spreads yielded a 24.06 percent for the year 2017 and 23.13 percent return for the year 2018.
Abstract Format
html
Language
English
Format
Electronic
Accession Number
CDTG008189
Keywords
Options (Finance); Stock index futures--Philippines; Stock exchanges--Philippines
Upload Full Text
wf_no
Recommended Citation
Grafil, S. C. (2019). Options pricing on the Philippine Stock Exchange Index (PSEI) and volatility trading for hedging and yield enhancement. Retrieved from https://animorepository.dlsu.edu.ph/etd_masteral/7156
Embargo Period
2-16-2025
