Research Article
Binary Option Pricing Model Based on Monte-Carlo Simulation in Terms of Dutch TTF Natural Gas Futures
@INPROCEEDINGS{10.4108/eai.28-10-2022.2328425, author={Xiaoran Liu and Xiwen Pan}, title={Binary Option Pricing Model Based on Monte-Carlo Simulation in Terms of Dutch TTF Natural Gas Futures}, proceedings={Proceedings of the International Conference on Financial Innovation, FinTech and Information Technology, FFIT 2022, October 28-30, 2022, Shenzhen, China}, publisher={EAI}, proceedings_a={FFIT}, year={2023}, month={4}, keywords={option pricing model binary option black-scholes model monte carlo method}, doi={10.4108/eai.28-10-2022.2328425} }- Xiaoran Liu
Xiwen Pan
Year: 2023
Binary Option Pricing Model Based on Monte-Carlo Simulation in Terms of Dutch TTF Natural Gas Futures
FFIT
EAI
DOI: 10.4108/eai.28-10-2022.2328425
Abstract
A binary option is a form of option in which the payout is either fixed or nothing at all if the underlying stock passes a predetermined threshold (strike price). The Russian-Ukraine crisis increased the price of natural gas in Europe significant on February 2022, since Russia uses natural gas imports and other energy sources as leverage to counter western economic sanctions. As a result, natural gas futures in Europe become a useful topic to discover binary option pricing through inputting historical data and examining its volatility and sensitivity. We introduce the essential concepts and history of binary options and use the Black-Scholes option model to price binary options. Specifically, the binary options with Dutch TTF Natural Gas Futures is selected as the target underlying asset. According to the stimulations, the binary option prices are frequently in the range of about €50 to €300, which can be a satisfactory price range for potential investors. These results shed light on both advantage and limitation of Black-Scholes option stimulation and offer more insights to future development of binary option pricing.