STOCHASTIC MODEL FOR GOLD PRICES AND ITS APPLICATION FOR NOARBITRAGE PRICING

Authors

  • N. ISSARANUSORN Department of Mathematics, Faculty of Science, Chulalongkorn University,Bangkok, 10330, Thailand
  • S. RUJIVAN Department of Mathematics, School of Science, Walailak University, Nakhon SiThammarat, 80161, Thailand
  • K. MEKCHAY Department of Mathematics, Faculty of Science, Chulalongkorn University,Bangkok, 10330, Thailand

Keywords:

Gold futures, European options, No-arbitrage prices, Instantaneousconvenience yields

Abstract

In this paper, we develop a onefactormodel of stochastic behavior ofgold prices. The gold prices are assumed to follow an extended Geometric BrownianMotion with a timevaryingdrift which describes seasonal variation in gold prices.The drift includes instantaneous convenience yields which follow an ordinary differentialequation. Moreover, we derive closedformsolutions for noarbitragepricesof gold futures and European gold options under the noarbitrageassumptions.

Additional Files

Published

12/21/2011

Issue

Vol. 2 No. 1 (2011): JNAO

Section

Research Articles

License

Copyright (c) 2024 Journal of Nonlinear Analysis and Optimization: Theory & Applications (JNAO)

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Copyright (c) 2010 Journal of Nonlinear Analysis and Optimization: Theory & Applications

Creative Commons License

This work is licensed under aย Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.