A Research of Time Value for TXO
Date Issued
2008
Date
2008
Author(s)
Chang, Mu-Kuei
Abstract
Option is one of derivatives on the financial market. Through various strategies, the investors are able to gain profit or lower the risk in the market.ption is a kind of contract on which the investor has the right to choose if honoring the agreement or not. The contract of option is tradable among investors. The value of option is so called the premium for which the buyer has to pay the seller. The value of the premium is decided on the platform of the trading market. The famous B/S model evaluates the option value. The premium consists of the intrinsic value and the time value. The intrinsic value is the difference between the market price and the strike price for an option contract. The time value implies the expectation of the investors for the future value of option. If the value of underlying asset has the potential to rise, the investors are willing to spend more to buy the option. The time value will rise accordingly.XO (Taiwan Stock Exchange Capitalization Weighted Stock Index Options), STO (Taiwan Stock Exchange Options), and both TEO (Taiwan Stock Exchange Electronic Sector Index Options) and TFO (Taiwan Stock Exchange Finance Sector Index Options) were launched since 2001, 2003, and 2005 on Taiwan Futures Exchange. The annual treading volume for TXO is almost hundred times of the other three options’. In this research, all contracts of option for TXO in 2007 are investigated. Three topics are discussed: the time decayed phenomenon for time value, the affected factors for time value, and the affected factors of big volatility for time value. The assumed factors to affect the time value are time left to maturity, the economic climate, the ratio between the underlying asset and the strike price, the daily trading volume, and the daily volume of open interest. The empirical results and conclusions of the three topics are as follows..The phenomenon of time value decay is proved for both the call and put party..The time left to the maturity and the daily trading volume are the most two important factors to affect the time value both for the call and put party..The time left to the maturity is the most important factor for the big volatility of time value both for the call and put party. n a summary, the trading and the daily trading volume are the two most important issues for investors when trading.
Subjects
Option
B/S Model
Time Value
Time Value Decay
Volatility
Type
thesis
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