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臺大管理論叢
第
27
卷第
1
期
283
We then turn to a review of the derivatives pricing models used in Taiwan. Beyond the
classic Black-Scholes model, the models applied by Taiwanese scholars include: constant
elasticity of variance model, jump diffusion model, variance gamma model, stochastic
volatility model, GARCH model, Markov jump diffusion model, Levy model, and GARCH-
Levy model.
Finally, the pricing methods used in Taiwan derivates research are discussed. Aside
from the derivations of analytical form solutions, the numerical methods utilized in Taiwan
are listed as follows.
1. Lattice approach: the general CRR binomial model; the Bi-variate tree method for
approximating equity and interest rate processes; building a binomial tree for the LIBOR
market model, the forward price lattice model for pricing quanto options under stochastic
interest rates; constructing the Edgeworth GARCH binomial tree; and building the
implied volatility tree.
2. Monte Carlo simulation method: variance reduction techniques for Monte Carlo
simulations; pricing American options and Euro-convertible bonds using the Monte Carlo
simulation method; and pricing American options using the least squares Monte Carlo
simulations.
3. Others: using the fast Fourier transform method for option pricing; the valuation of
barrier options with the recursive integral method; pricing employee stock options using
the dynamic programing method; pricing options with the genetic adaptive neural
network approach; the valuation of options using the grey relational analysis; and pricing
European option using the fuzzy set theory.
3. Review of Derivatives Hedging and Arbitrage Literature in Taiwan
As more and more derivative products are being employed to hedge risks among
different financial transactions, relevant studies about derivatives hedging have exhibited fast
growth over the past years. We divide the related literature into two categories.
1. Forward and futures hedging: the main research topics in this aspect focus on how to
calculate the optimal hedging ratios in order to obtain the best hedging effectiveness. We
then conduct a literature survey according to different underlying assets such as index
futures, currency futures, and physical goods futures.
2. Options hedging: there are many research topics concerning options hedging. We select
some popular topics included in the literature survey, like warrants hedging, stock options
hedging, and exotic options hedging.