Author(s)

Yuchen Zhai and Wenbin Zuo

Corresponding Author

Yuchen Zhai

ABSTRACT

With the development of economy, the financial market is becoming more and more complicated. As a result of high remuneration and deposits, most investors are seeking to find the optimal choice of investment to minimize risks and maximize benefits. Chooser options offer buyers considerable flexibility as they have the right to choose between call and put, becoming more and more popular. In this paper, we analyze AAPL’s chooser options to find out factors that affect the value of chooser option based on Monte-Carlo Simulation. which is used to estimate the possible outcomes of an uncertain event and help to explain the impact of risk and uncertainty in prediction and forecasting models. According to the results, the higher the volatility of the underlying asset, the higher is the price for both call options and put options. In other words, when interest rates increase, the call option prices increase while the put option prices decrease. Whereas, if the choice time of contract is the current date the value of a chooser option is equal to the value of the simple call option. If the choice time is equal to one, the chooser value equals the value of a straddle strategy. However, we use the historical volatility, which is measured at a given time period, hence the results may not exactly predict what will happen in the future, which may also have an impact on the stock price. Most scientific studies have been focused on developing models for pricing various types of exotic options, but it is important to investigate their unique characteristics and to understand them correctly in order to use them proper market situations. These results shed light on investment decision making based on the elements that affect the price of chooser option and choices of buyers.

KEYWORDS

Chooser option, volatility, interest rate, risk, stock price