Valuing American Derivatives by Least Squares Methods

Least Squares estimators are notoriously known to generate sub-optimal exercise decisions when determining the optimal stopping time. The consequence is that the price of the option will be underestimated. We show how to use variance reduction techniques to extend some recent Monte Carlo estimators for option pricing and assess their performance in finite samples. Finally, we extend the Longstaff and Schwartz (2001) method to price American options under stochastic volatility. This is the first study to implement and apply the Glasserman and Yu (2004b) methodology to price Asian options and basket options.American options, Monte Carlo method

Assessing investment strategies in mining projects in the Asia-Pacific region

The Asia-Pacific region has experienced a significant period of development over the last four decades. Rapid urbanisation has resulted in an increased demand for mineral resources indicating the resource industry has contributed the primary income to the economies of many Asia-Pacific countries. The objective of this thesis is to shed light on investment opportunity using the strategy of timing flexibility. This thesis uses two methodologies, namely Net Present value (NPV) and real options valuation (ROV), to conduct an investment analysis assessing timing flexibility. This thesis finds that commodity prices affect the mining investors’ decisions. However, the impact of tax policy uncertainty is quite subtle

Accelerating Reconfigurable Financial Computing

This thesis proposes novel approaches to the design, optimisation, and management of reconfigurable computer accelerators for financial computing. There are three contributions. First, we propose novel reconfigurable designs for derivative pricing using both Monte-Carlo and quadrature methods. Such designs involve exploring techniques such as control variate optimisation for Monte-Carlo, and multi-dimensional analysis for quadrature methods. Significant speedups and energy savings are achieved using our Field-Programmable Gate Array (FPGA) designs over both Central Processing Unit (CPU) and Graphical Processing Unit (GPU) designs. Second, we propose a framework for distributing computing tasks on multi-accelerator heterogeneous clusters. In this framework, different computational devices including FPGAs, GPUs and CPUs work collaboratively on the same financial problem based on a dynamic scheduling policy. The trade-off in speed and in energy consumption of different accelerator allocations is investigated. Third, we propose a mixed precision methodology for optimising Monte-Carlo designs, and a reduced precision methodology for optimising quadrature designs. These methodologies enable us to optimise throughput of reconfigurable designs by using datapaths with minimised precision, while maintaining the same accuracy of the results as in the original designs

Financial Investment Management for Forest Sustainability

This is paper is discussion about main problems of forest management, whether financial investment has a substantial impact on the long term perspective of forest landscape restoration and, more specifically, what strategy and what financial options are available to make the forest projects more sustainable. A few relevant questions to ask are: who are the main actors in the implementation of FLR projects; which steps have to be taken; and, which financial options would more suitable and would be feasible to implement. There are three main parts of this research to be investigated: forest issues along with their respective solutions, financial investment as an operational tool, and financial mechanisms for sustainable forestry. The description of the global problem of deforestation in the period of the end of the last century and the current time is area of interest, as well as, the influence of the deforestation on the environment and implementation of financial tools to make environmental management more sustainable. The main two subjects or themes that are going to be explored are: the problem of deforestation and the implementation of innovative financial tools to help in solving environmental issues. In recent years, interest in impact investing has grown substantially. Socially, oriented organizations are pursuing innovative financial solutions that address complex social problems. It requires great collaboration among philanthropists, government, and private investors. Financial investment is a representation of the significant and growing input of capital that can fund programs to address social or environmental problems and get effective sustainable output. While investing in the business, most investors would like to get their financial return in a short period of time. However, this tendency is gradually changing. A growing number of investors want to use their capital to make positive social and environment changes and is becoming a main stream financial approach (Rockefeller Philanthropy Advisors, 2009). This paper shows the possibility of implementation different types of methods of the real options approach to forestry investment analysis. The main objectives are to discuss the theory of real option and describe methods which can be applicable for uncertainty and managerial flexibility in forest management and investment. In addition, we will use the simulation method as a most flexible method to calculate the option values of timber contracts what could help managers of forest projects to make the proper decision. One of the main focus in current research paper is to implementation of the methodology which is applicable to value of the scale sale harvest contract. The value of a harvest contract with stochastic timber prices can be considered as expected cash flow as well as discounted profit from the forest yields at the optimal time (Petrasek & Perez- Garcia, 2010)

A New Proposal for Collection and Generation of Information on Financial Institutions' Risk: the case of derivatives

This article aims at providing a new alternative for the collection of information on risks taken by financial institutions, which enables the calculation of risk tools usually used in risk management, such as VaR and stress tests. This approach should help risk managers, off-site supervision and academics in assessing the potential risks in financial institutions principally due to derivatives positions. The basic idea, for linear financial instruments, like the traditionally used by the management risk systems, is to reduce positions in risk factors and then mapping by vertices. For the nonlinear financial instruments all of the positions in different types of options – European, Americans, exotic, etc.– are represented as plain vanilla European options or replicated by portfolios of plain vanilla European options. The methodology was applied to Brazil, within the worst scenarios during the period from 1994 to 2004, and the paper demonstrates that the proposed approach captured the risks satisfactorily in the analyzed portfolios, including the risk existent in the strategies involving options, given an accepted error margin. This approach could be useful for regulators, risk managers; financial institutions and risk management modeling as it can be used as an input in general risk management models.

Closed-Form Approximations for Spread Option Prices and Greeks

We develop a new closed-form approximation method for pricing spread options. Numerical analysis shows that our method is more accurate than existing analytical approximations. Our method is also extremely fast, with computing time more than two orders of magnitude shorter than one-dimensional numerical integration. We also develop closed-form approximations for the greeks of spread options. In addition, we analyze the price sensitivities of spread options and provide lower and upper bounds for digital spread options. Our method enables the accurate pricing of a bulk volume of spread options with different specifications in real time, which offers traders a potential edge in financial markets. The closed-form approximations of greeks serve as valuable tools in financial applications such as dynamic hedging and value-at-risk calculations.