Pricing the European Option on the Futures of Stock Indices to Hedge the Risks of Price Volatilities : Analytical Study on the Dubai Stock Exchange

Post by: Muthanna mjdes
November 8, 2022
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Saad Majeed AL-Janabi ^*a & Sajad Yousuf Khalaf ^b

Al-Muthanna University / College of Administration and Economics.

Abstract

This study aimed to shed light on a statement of the hedging strategy with options for futures in the European way and using the (Black Scholes) model of Volatilities in stock prices and their indicators affected as a result, and the role this hedging plays in achieving returns and avoiding loss compared to present sale and purchase. Therefore, the study focused on a number of questions about the problem, for which a number of hypotheses were formulated, the most prominent of which is: (The Black Scholes model is accurate in pricing European options on the futures of stock indices).The study sample consisted of five futures contracts for a number of companies listed on the Dubai Stock Exchange for the period from (2/21/2018 to 3/16/2020). It is worth noting that choosing the Dubai Stock Exchange came as a means and not an end, as the main purpose is to study the Iraqi Stock Exchange and how to develop it using these tools, but for technical reasons related to the absence of scientific awareness required for future options programs on the part of companies on the one hand and by dealers in the market from On the other hand, this creative mechanism of hedging was not used, and with it the multiple advantages that it could bring to all parties, which began with the interests of the investor and how to hedge against the losses that might befall him, and by using a number of financial and statistical methods using the EXCEL and SPSS programs for Analyzing the study variables and testing their hypotheses, and the study reached a number of conclusions, perhaps the most important of which is (the results of financial and statistical analysis to study future options to hedge against stock price fluctuations have proven that changes in future indicators in the case of purchasing options are that most contracts are directly proportional, i.e. within the possibility of making a profit. According to that, the study came out with a number of recommendations, perhaps the most important of which is the necessity to rely on (Using hedging with futures options to achieve returns and avoid losses using the Black Scholes model)