Stock forward contract is a kind of financial derivative.DoublebonuspokerWhich allows investors to buy and sell stocks at a fixed price at a specific date in the future For investors and financial institutionsDoublebonuspokerIt is very important to understand how to price stock forward contracts. This paper will introduce several common pricing methods of stock forward contracts and analyze their advantages and disadvantages.
oneDoublebonuspoker. Non-arbitrage pricing method
Non-arbitrage pricing is a pricing method based on the market without arbitrage opportunities. It assumes that in the absence of arbitrage opportunities, the price of a forward contract should be equal to the current price of the stock plus the cost of holding. The cost of holding includes the financing cost and dividend income of the stock. The advantage of this method is that it is easy to understand and the calculation process is relatively easy. But its disadvantage is to assume that there is no arbitrage opportunity in the market, which is not always true in the real market.
twoDoublebonuspoker. Risk-neutral pricing method
Risk-neutral pricing is a pricing method based on risk-neutral probability. It assumes that investors' attitude towards risk is neutral, that is, they do not ask for an additional risk premium. The advantage of this method is that it can take into account the volatility of the market, but the disadvantage is that the calculation process is more complex.
3. Monte Carlo simulation method
Monte Carlo simulation is a pricing method based on stochastic simulation. It calculates the price of forward contracts by simulating the future path of stock prices. The advantage of this method is that it can take into account the uncertainty of the market, but the disadvantage is that it requires a lot of computing resources.
4. Binary tree model
Binary tree model is a pricing method based on stock price fluctuation. It assumes that stock prices have two possible states at every point in the future: up or down. The advantage of this method is that it can take into account the volatility of stock prices, but the disadvantage is that the calculation process is more cumbersome.
Here is a table that compares these four methods:
The advantages and disadvantages of the pricing method are easy to understand, and the calculation process is easy to assume that there is no arbitrage opportunity in the market. does not accord with the actual risk-neutral pricing method considering market volatility calculation process complex Monte Carlo simulation method considering market uncertainty requires a large number of computing resources binary tree model considering stock price volatility calculation process is cumbersomeGenerally speaking, which pricing method to choose depends on investors' risk preference, computing power and market conditions. Investors should choose the most suitable pricing method according to their actual situation.