STOCHASTIC MODEL FOR GOLD PRICES AND ITS APPLICATION FOR NOARBITRAGE PRICING

Authors

  • N. Issaranusorn Department of Mathematics, Faculty of Science, Chulalongkorn University,Bangkok, 10330, Thailand
  • S. Rujivan Department of Mathematics, School of Science, Walailak University, Nakhon SiThammarat, 80161, Thailand
  • K. Mekchay Department of Mathematics, Faculty of Science, Chulalongkorn University,Bangkok, 10330, Thailand

Abstract

In this paper, we develop a onefactormodel of stochastic behavior ofgold prices. The gold prices are assumed to follow an extended Geometric BrownianMotion with a timevaryingdrift which describes seasonal variation in gold prices.The drift includes instantaneous convenience yields which follow an ordinary differentialequation. Moreover, we derive closedformsolutions for noarbitragepricesof gold futures and European gold options under the noarbitrageassumptions.

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Published

2011-12-21

How to Cite

Issaranusorn, N., Rujivan, S., & Mekchay, K. (2011). STOCHASTIC MODEL FOR GOLD PRICES AND ITS APPLICATION FOR NOARBITRAGE PRICING. Journal of Nonlinear Analysis and Optimization: Theory & Applications, 2(1), 11-17. Retrieved from http://www.math.sci.nu.ac.th/ojs302/index.php/jnao/article/view/16

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Section

Research Article