Option pricing on sesame price using jump diffusion models

In this paper, we aim at developing a model for option pricing to reduce the risks associated with Ethiopian sesame price fluctuations. The White Humera Gondar Sesame Grade ۳ (WHGS۳) price, which is recorded from ۵ November ۲۰۱۰ to ۳۰ March ۲۰۱۸ at Ethiopia Commodity Exchange (ECX) market, is used to analyze the price fluctuation. The nature of log-returns of the price is asymmetric (positively skewed) and exhibits high kurtosis. We used jump diffusion models for modeling and option pricing of sesame price. The method of maximum likelihood is applied to estimate the parameters of the models. We used the Root Mean Square Error (RMSE) to test the goodness of fitting for the two models to the data. This test indicates that the models fit the data well. The techniques of analytical and Monte Carlo simulation are used to find the call option pricing of WHGS۳ sesame price. From the results, we concluded that Double Exponential Jump Diffusion (DEJD) model is more efficient than Merton’s model for modeling and option pricing of this sesame price.

کلیدواژه ها:

Jump diffusion model ، Option pricing ، Kurtosis ، Skewness ، Risk-neutral measure ، WHGS۳ sesame price