Taiex Index Option Model by Using Nonlinear Differential Equation

Tsung-Jui Chiang Lin; Meng-Rong Li; Yong Shiuan Lee

doi:10.3390/mca19010078

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Article

1 April 2014

Taiex Index Option Model by Using Nonlinear Differential Equation

and

Graduate Institute of Finance, National Taiwan University of Science and Technology, 10607, Taipei, Taiwan

Department of Mathematical Sciences, National Chengchi University, 11605 Taipei, Taiwan

Department of Statistics, National Chengchi University, 11605, Taipei, Taiwan

Authors to whom correspondence should be addressed.

Math. Comput. Appl.2014, 19(1), 78-92;https://doi.org/10.3390/mca19010078

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Abstract

In this study we treat TXO price as a dynamic system which changes over time and characterize it by differential equations. Our goal is to construct a model more suitable for TXO. We use ―Parabola Approximation‖ proposed by Li et al. (2011) to solve the differential equations and try to find the model which fits our data the most. Empirical study shows the model used all produce accurate estimates of TXO prices.

Keywords:

differential equation; dynamic system; parabola approximation; options; TXO; B-S model

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