Pricing of contract Call and Put Option of Corn with Black-Scholes and Binomial Tree Approaches

Document Type : Research Paper

Authors

• Hamid Mohammadi ¹
• Hadi Tamidi ²
• davood seifi ³
• vahid dehbashi ¹
• Mohamad Mehdipur ⁴

¹ Assistant Professor, University of Zabol, Department of Agricultural Economics.zabol. iran

² Phd Student, University of Zabol, Faculty of Agriculture.zabol.iran

³ Assistance Professor, University of Zabol, Department of Law, zabol. iran

⁴ lecturer, University of Zabol, Department of Law, zabol. iran

10.30495/jae.2024.31816.2382

Abstract

Introduction: Due to uncertain atmospheric conditions, agricultural products have a functional risk and irregular supply in the market. Irregular supply, in turn, cause price fluctuations and price risk for the farmer. To management the price risk of agricultural crops, we can use a new financial tool, such as an option derivative. The adoption of principled investment decisions and the optimal allocation of capital resources requires the valuation of the option through valid scientific methods. In the present study we firstly investigate the condition where corn is considered as a base asset. After the formation of a hypothetical option market for the corn, we address option pricing using Black-Scholes and binomial tree.
Materials and Methods: The current study aims to identify the factor affecting economic growth and the spatial correlation in 21 selected developed countries during 2016-2017 using panel Tobit and spatial panel Tobit models.
Findings: According to the results the volatility of corn prices was estimated using time series data, 0.3117 and standard error 0.0240. The estimated price of the call option and the put option In the Black Scholes model, it is 240.77 Rials and 2101.17 Rials per unit of corn crop respectively. This means that farmers can pay 2101.1 rials per unit, Cover yourself against the fall in corn prices. By increasing the number of periods, the estimated prices from the bimonthly tree are closer to the estimated price of the Black-Scholes model.
Conclusion: It is recommended that the market for this product, to reduce the price risk of producers and consumers in Iran's stock exchange.

Keywords

• Risk Management
• Binomial Tree
• Future Market
• Option Pricing
• Option

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