IDEAS home Printed from https://ideas.repec.org/p/gtr/gatrjs/jfbr208.html
   My bibliography  Save this paper

Comparison of Black-Scholes and Garch Option Models on The Kompas100 Index With a Long Straddle Strategy During 2008-2021

Author

Listed:
  • Riko Hendrawan

    (Telkom University, Indonesia Author-2-Name: M. Dirga Aulia Hasibuan Author-2-Workplace-Name: Telkom University, Indonesia Author-3-Name: Author-3-Workplace-Name: Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)

Abstract

" Objective - This study aims to look at the use of contract options through Black Scholes and GARCH modeling on the Kompas100 Index with a long straddle strategy both in crisis and non-crisis. Methodology – The data used for the observation period are the closing price of the Kompas100 Index from 2008 to 2021. The testing lasts one month (from February 2008 to December 2021), and three months (from April 2008 to December 2021). To get the results, the average mean square errors (AMSE) of the two models were compared by implementing the long straddle strategy, meaning that the model is better if the percentage number is lower. Findings – Over a one-month period during the crisis, GARCH modeling performed better than Black Scholes modeling, with an error rate of 2.5539% for call options. Meanwhile, Black Scholes's modeling was better on put options with an error rate of 1.9725%. In the 3-month period, GARCH modeling was better, with error rates for call and put options of 10.3882% and 7.4282%, respectively. In non-crisis years, GARCH modeling beat Black Scholes modeling during a one-month period with an error rate of 0.2689%, while Black Scholes modeling was better on put options with an error rate of 0.2943%. In addition, over a 3-month period, Black Scholes modeling performs better, with error rates on call and put options of 0.8821% and 1.0337%, respectively. Novelty – The longer the agreement term, the greater the error rate in both option models. The study results revealed that the error rate for the 3-month period was higher than the 1-month period. Type of Paper - Empirical/ Review"

Suggested Citation

  • Riko Hendrawan, 2023. "Comparison of Black-Scholes and Garch Option Models on The Kompas100 Index With a Long Straddle Strategy During 2008-2021 ," GATR Journals jfbr208, Global Academy of Training and Research (GATR) Enterprise.
  • Handle: RePEc:gtr:gatrjs:jfbr208
    DOI: https://doi.org/10.35609/jfbr.2023.7.4(1)
    as

    Download full text from publisher

    File URL: http://gatrenterprise.com/GATRJournals/JFBR/pdf_files/JFBR-Vol-7(4)/1.Riko%20Hendrawan.pdf
    Download Restriction: http://gatrenterprise.com/GATRJournals/online_submission.html

    File URL: https://libkey.io/https://doi.org/10.35609/jfbr.2023.7.4(1)?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Aparna Bhat & Kirti Arekar, 2016. "Empirical Performance of Black-Scholes and GARCH Option Pricing Models during Turbulent Times: The Indian Evidence," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(3), pages 123-136, March.
    2. Bentes, Sonia R., 2015. "Forecasting volatility in gold returns under the GARCH, IGARCH and FIGARCH frameworks: New evidence," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 438(C), pages 355-364.
    3. Sasikanta Tripathy & Abdul Rahman, 2013. "Forecasting Daily Stock Volatility Using GARCH Model: A Comparison Between BSE and SSE," The IUP Journal of Applied Finance, IUP Publications, vol. 19(4), pages 71-83, October.
    4. Deannes Isynuwardhana & Gisyari Nurul Istiqamah Surur, 2018. "Return Analysis on Contract Option Using Long Straddle Strategy and Short Straddle Strategy with Black Scholes," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 8(4), pages 16-20, October.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Riko Hendrawan, 2023. "Comparison of Black-Scholes and GARCH Option Models on The Jakarta Islamic Index with Collar Strategy," GATR Journals jfbr209, Global Academy of Training and Research (GATR) Enterprise.
    2. Tamal Datta Chaudhuri & Indranil Ghosh, 2016. "Artificial Neural Network and Time Series Modeling Based Approach to Forecasting the Exchange Rate in a Multivariate Framework," Papers 1607.02093, arXiv.org.
    3. Demirer, Riza & Gkillas, Konstantinos & Gupta, Rangan & Pierdzioch, Christian, 2019. "Time-varying risk aversion and realized gold volatility," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    4. N. Suresh & N. R. Bharathi, 2022. "Effect of Demonetisation of on Indian High Denomination Currencies on Indian Stock Market and its Relationship with Foreign Exchange Rate," Papers 2207.06963, arXiv.org.
    5. Zhu, Xuehong & Zhang, Hongwei & Zhong, Meirui, 2017. "Volatility forecasting using high frequency data: The role of after-hours information and leverage effects," Resources Policy, Elsevier, vol. 54(C), pages 58-70.
    6. S. Al Wadi, 2017. "Improving Volatility Risk Forecasting Accuracy in Industry Sector," International Journal of Mathematics and Mathematical Sciences, Hindawi, vol. 2017, pages 1-6, November.
    7. Onder Buberkoku, 2019. "Do Long-memory GARCH-type-Value-at-Risk Models Outperform None-and Semi-parametric Value-at-Risk Models?," International Journal of Energy Economics and Policy, Econjournals, vol. 9(2), pages 199-215.
    8. Gong, Xiao-Li & Liu, Xi-Hua & Xiong, Xiong & Zhuang, Xin-Tian, 2018. "Modeling volatility dynamics using non-Gaussian stochastic volatility model based on band matrix routine," Chaos, Solitons & Fractals, Elsevier, vol. 114(C), pages 193-201.
    9. Quynh-Trang Nguyen & John Francis Diaz & Jo-Hui Chen & Ming-Yen Lee, 2019. "Fractional Integration in Corporate Social Responsibility Indices: A FIGARCH and HYGARCH Approach," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(7), pages 836-850, July.
    10. Onder Buberkoku, 2018. "Examining the Value-at-risk Performance of Fractionally Integrated GARCH Models: Evidence from Energy Commodities," International Journal of Economics and Financial Issues, Econjournals, vol. 8(3), pages 36-50.
    11. González-Pla, Francisco & Lovreta, Lidija, 2019. "Persistence in firm’s asset and equity volatility," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 535(C).
    12. Yee-Fan Tan & Lee-Yeng Ong & Meng-Chew Leow & Yee-Xian Goh, 2021. "Exploring Time-Series Forecasting Models for Dynamic Pricing in Digital Signage Advertising," Future Internet, MDPI, vol. 13(10), pages 1-24, September.
    13. Lahmiri, Salim & Bekiros, Stelios & Salvi, Antonio, 2018. "Long-range memory, distributional variation and randomness of bitcoin volatility," Chaos, Solitons & Fractals, Elsevier, vol. 107(C), pages 43-48.
    14. Jordan Ngu Chuan Yong & Sayyed Mahdi Ziaei & Kenneth R. Szulczyk, 2021. "The Impact of Covid-19 Pandemic on Stock Market Return Volatility: Evidence from Malaysia and Singapore," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 11(3), pages 191-204, March.
    15. Pierdzioch, Christian & Risse, Marian & Rohloff, Sebastian, 2016. "A boosting approach to forecasting the volatility of gold-price fluctuations under flexible loss," Resources Policy, Elsevier, vol. 47(C), pages 95-107.
    16. Sauraj Verma, 2021. "Forecasting volatility of crude oil futures using a GARCH–RNN hybrid approach," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 28(2), pages 130-142, April.
    17. Yu, Wenhua & Yang, Kun & Wei, Yu & Lei, Likun, 2018. "Measuring Value-at-Risk and Expected Shortfall of crude oil portfolio using extreme value theory and vine copula," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 490(C), pages 1423-1433.
    18. Liu, Xueyong & An, Haizhong & Li, Huajiao & Chen, Zhihua & Feng, Sida & Wen, Shaobo, 2017. "Features of spillover networks in international financial markets: Evidence from the G20 countries," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 479(C), pages 265-278.
    19. McIver, Ron P. & Kang, Sang Hoon, 2020. "Financial crises and the dynamics of the spillovers between the U.S. and BRICS stock markets," Research in International Business and Finance, Elsevier, vol. 54(C).
    20. Dibooglu, Sel & Cevik, Emrah I. & Gillman, Max, 2022. "Gold, silver, and the US dollar as harbingers of financial calm and distress," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 200-210.

    More about this item

    Keywords

    Option; Black Scholes; GARCH; AMSE; Long Straddle;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gtr:gatrjs:jfbr208. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Prof. Dr. Abd Rahim Mohamad (email available below). General contact details of provider: http://gatrenterprise.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.