Hisse senedi opsiyonları ve İstanbul Menkul Kıymetler Borsası'nda uygulanabilirliği
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- Tez No: 355157
- Danışmanlar: PROF. DR. NAZIM EKREN
- Tez Türü: Doktora
- Konular: Ekonomi, Economics
- Anahtar Kelimeler: Belirtilmemiş.
- Yıl: 1997
- Dil: Türkçe
- Üniversite: Marmara Üniversitesi
- Enstitü: Bankacılık ve Sigortacılık Enstitüsü
- Ana Bilim Dalı: Bankacılık Ana Bilim Dalı
- Bilim Dalı: Belirtilmemiş.
- Sayfa Sayısı: Belirtilmemiş.
Özet
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Özet (Çeviri)
Trading in financial futures and options has come to play such an important role in the Iinancialmarkets tbat it is surprising to recall tbat these markets arc less tban 15 years old. The objective or this study is to sketch the role of stock options in the overall financial marketsystern and to describe the interaction between the option market and those fur the underlying securities as well as to discuss the applicability of stock options in the Istallhlll Stock 1':xch:1I1gC (lSI':) Ikriv:llives fvimkd tlHlt will he lallnched hy the elld or the year 1997. The approach offered here will try to shed light on any change in the market when stock options starts trading in the capital market. ror this purpose, a single stock which is currently under privatization and h~lS the highest trading volume in the lSE Securities Market is selected The study in summary covers the following topics: • The development and structure of opliQns markets is covered in general terms, • The basic concepts, theory and pricing of stock options is discllssed in detail, • The options pricing models und tlwir historical development is presented, • The advantages und disadvantages of option pricing models, specillcally binomial and B1ack-Scholes models, and the modifications that may Icad to considerable improvement in pricing is discussed, • The sensitivity analysis of option premium to vanoLls factors that lead to the , formation of an option price is analyzed, • The applicability of stock options in the Turkish Capital Markets in the absence of Derivalives Market is investigated 011 a selected single stock, • The stock volatilily of ISE Securities Market ancl ils term structure is covered and its polential impact on stock option initiation is discussed, • The polential economic and financial impact or stock option 111 Turkey IS evaJ uatecl. To begin with, options are financial instruments that can provide the individual and/or institutional investor, with tbe flexibility that he needs in almost any investment si tuation he may encounter. Optiolls give tile illvestors optiolls. 'I'11<:y ,Ire Il(lt just limited to buyillg, selling or staying out of the market. With options, the investors can tailor their position to their own situation and stock market outlook. The potential benefits of options may be summarized as follows: • The investor can protect stock holdings from a decline in market price • The investor can increase income against current stock holdings • The investor can prepare to buy stock at a lower price • The investor can position himself for a big market move - even when he cloes not know which way prices will move • The investor can benefit from a stock price's rise or fall without incurring the cost of buying or selling the sLock outright. A stock option is a contract which conveys to its holder the right, but not the obligation, to buy or sell shares of the underlying security at a specified price on or before a given date. After this given elate, the option ceases to exist. The seller of an option is, in turn, obligated to sell (or buy) the shares Lo (or from) the buyer of the option at the specified price upon the buyer's request. Although the history of options extends several centuries, it was not until 1973 that standardized, exchange listed and government-regulated options became available. At that time, a revolutionary change occurred in the options world. Thc Chicago Board of Trade (CBOT), the ,,,,orId's oldest and largest exchange for the trading of commodity {'uturcs contracls, organized an exchange exclusively {'or trading options on stocks. The Exchange was named the Chicago Board Options Exchange (CBOE). It opened its doors for call option trading 011 April 26, 1973 and the first puts were added in .Iunc 1977. Tbe CI30E created a central market place [or options. By standardizinlj the terms and conditions of option contracts, including listing requirements, contract size, exercise prices, expiration dates, position ancI exercise limits, it added liquidity. Most importantly, however, the CBOE added a clearing house that guaranteed to the buyer that the writer would fulfill his or her end of the contract. Thus, unlike in the over-thecounter market, option buyers no longer had to worry about the credit risk of the writer. This made options more attractive to the general public. Since that time, several stock exchanges have begun trading stock options. These CXc\HlllgCS scck to provide competitive, liquid alld orderly markets for the purchasc and sale of standardized options. All option contracts traded on these exchanges are guaranteed by the clearing house systcm. In only a few years, these options virtually displaced the limited trading in over-the-counter options and became an incUspen~able tool for the securities industry. There are several issues that one should grasp with stock options. One of the basic issue that one should. refer to while analyzing stock options is the basic principles of option pricing. It identifies rules that impose upper ancl lower limits on put and call prices and examines the variables that affect an option's price. In addition, it dcmonstrates how put and call prices are relatcd to each other by the put-call parity rule. Finally, it examines the conditions that can induce an option trader to exercise an option prior to expiration. In case of the basic principles of option pricing, an often confusing principle is the establishmcnt of a minimum price. first, the absolute minimum price of a call is zero. For American calls, the intrinsic value will provide a higher minimum if the option is in the money. Thus, it dominates the minimum of zero. However, it cloes not apply to European calls, because they can not be exercised early. Nonetheless, there is a lower bound for European calls, which is the maximum of zero or the stock price minus the present value of the exercise price. This is at least as high as the intrinsic value of the American call. I3ecause American calls must be worth at least as much as European calls, this lower bound applics to American calls as well. Thus, the ultil~1ale minimum 3 for both European and American calls (on non-dividend-paying stocks) is the lower bound established for European calls. Both American and European puts have an absolute l1Ull1mum value of zero. American puts have an intrinsic valuc, which is thc maximum of zero or the exercise price minus the slock price. The minimum does not apply to European puts, because they can not be exercised early. European puts have a lower bound that is the maximum of zero or the present value of the exercise price minus the stock price. Because this lower bound is never greater than the intrinsic value of the American put, it does not help the investor raise the minimum for American puts. Thus, the lower bound is the minimum for European puts and the intrinsic value is the minimum for American puts (011 non-dividend-paying stocks). Although put-call parity appears to be a method of pricing options, it is only a relative option pricing model. To price the put, one needs to lmow the call's price; to price the call, one must know,the put's price. Therefore, one can not use put-call parity to price onc instrument without either accepting the market price of the other as correct or having a modcl that first gives us the price of the other. In short, one needs an option pricing model- a formula that gives the option's price as a function of the variables that should affect it. If the option pricing model is correct, it should give option prices that conform to these boundary conditions. Most important, it should establish the theoretically correct option price. If the market price is out of line with the model price, arbitrage should force it to move toward the model pnce. Beneath the surface of option pricing model is many years of research that evolved from an understanding of the mathematics and physics. While the Black-Scholes option pricing formula is the most popularly known and accepted one in the literature, there are several models developed prior to this model, including Sprenkle (1964), Boness (1964) and Samuelson (1965) Model. 4 Since these models had some deficiencies in their respective assumptions, new models had been enhanced to avoid these errors and improve the existing models to a considerable extent. Two well known of these models are the binomial option pricing model and Black-Scholes option pricing model. The binomial option-pricing model, which was originally developed by Cox, Ross and Rubinstein in 1979, assumes that the stock price follows a multiplicative binomial process over discrete periods. Starting with the simple one-period binomial option pricing model, the value of the stock underlying an option (S) is assumed to go up (u) or clown (d) by a specific amount in the next period. In other words, the stock will take on a value in the next period of either uS or dS, where u > 1 and 0 < d <1. As the one period case is unrealistic, the model is then extended to a two-period model and the two-period model to multi-period model which is mueh more realistic. The binomial option pricing formula can be npplied to various time periods: months, weeks, days or even minutes. As the time period used becomes smaller, the number of periods to expiration increases for an option with a given time to expiration. Thus, c011tinuos-time option pricing formula, such as the Black-Scholes model are noting more than the binomial formula for an infinite number of arbitrarily small time periods. In fact, the binomial model provides a foundation for the Black-Scholes model which were developed by Fisher Black and Myron Scholes in 1973. In addition, the binomial model can be extended to converge to the Black-Scholes Model and it can provide American option prices as well. The Black-Scholes Model, on the other hand, is a practical method for obtaining the theoretical fair value for a call option. The study reviewed the effects of changing the various inputs on the option premium and observed the difficulty of obtaining certain inputs, such as the volatility of the underlying stock. The volatility is the most critical ite111 because it must be estimated and the model is highly sensitive to the volatility. By using put-eaU parity, the Black-Scholes Model can also be applied to,European puts. 5 Actually, there are several factors which contribute value to an option contract and thereby influence the premium or price at which it is traded in Black-Scholes Option Pricing ModeL The most important of these factors arc the price of thc underlying stock, time remaining until expiration, interest rates, the volatility of the underlying stock price and cash dividends. The relevant parameters that measure the sensitivity of option premium to each of these factors, except cash dividends, are called delta, gamma, theta, rho and vega respectively. As to the benefits of stock options trading, as Fisher Black (1975) suggests, information traders may prefer trading in. options rather than shares due to economic incentives provided by reduced transaction costs, capital requirements, and trading restrictions aed due to the greater action offered by option trading. In fact, futures and options markets contribute to increased demand in the underlying cash markets. Supporters point to benefits resulting from the fact that financial futures and options greatly expand the range of strategies for risk management available to investors. But others express concern that trading in these instruments may interfere with the smooth operation of existing financial markets. The analogy of the options market as a kind of barometer of market sentiment is appropriate. When stock options prices begin to drop, leading to arbitrage activity that pushes down stock prices. in the cash market, one should view this as the normal response of a unified financial market to'changing expectations: prices first move in the most liquid segments of the market and over time spread to the less liquid segments as investors gradually readjust their portfolios. Because of their more-complex payoff patterns, options create a wider variety of portfolio optimization strategies. Options are also subject to an arbitrage-based theoretical valuation relationship, the Blaek-Scholes model or some variant of it, but because the model involves the volatility of the underlying asset that is not directly observable, deviations from theoretical pricing in the. options market are more ambiguous than in the futures. G Option introduction may have significaHt effects on the returns of the underlying security, as documented by a large number of studies on, primarily, U.S. stock markets. These effects are related to risk and return characteristics, to market microstructure, and to price adjustments to new information. Overall, option listing seems to have no impact on the systematic risk and a dampening effect on the total risk of the underlying stock. Furthermore, bid-ask spreads typically decline substantially, while the speed with which new information is incorporated into stock prices tends to increase. On the other hand, no firm conclusions can be drawn regarding the implications for stock excess returns and trading volume. Coming to the Turkish Capital Markets, the latter have shown a remarkable progress in the last decade in terms of both quality and quantity and have become \110re internationalized by offering new markets and financial instruments to the investors. Within a very short period of time, a ti-ansparent, well-administered and carefully supervised capital market structure has been built in Turkey. In spite of all these efforts, Turkish financial system is characterized by its high volatility, since the market can not be isolated from the whole economy. The Istanbul Stock Exchange (ISE), being the only securities exchange of Turkey, strives to further increase its share within the Turkish economy and is now about to launch a new market, namely“Futures and Options Market”so as to provide new hedging tools to the investors by offering a variety of markets and instruments. I strongly beli~ve that this market will provide very important hedging tools for institutional investors, and t.hus will make Turkish markets more attractive and more challenging for especially foreign investors. Shortly, ISE Derivatives Market would be a fully automated screen based trading system. The trading system will contain a risk management module which will be fully integrated with t.he Clearing I-louse. Derivatives trading will be carried out in a continuous auction system with market makers involved as stabilizers. The Exchange may appoint more than one market maker for a certain derivative contr~ct. With this 7 mechanism, market makers will add considerable liquidity to the market, which in turn make the market more efficient. , With the help of features including a fully integrated clearing system, real-time communicatioll interaction and reporting activities between the trading and clearing system, a sound operation of the market will be realized. In this context, the initiation of stock options as a derivative instrument in the ISE Derivatives Market among others would lead to a number of opportunities as well as would have some drawbacks in the market. The main advantages may be stated as follows: • The introduction of traded stock options may lead to a reduction in the volatility of returns. • Stock options introduction may have a positive impact on stocks' trading volumes, which is the typical result for less mature markets. In these cases, the negative impact on trading volume from reduced stock volatility will be small and outweighed by the positive effects from an extended investment opportunity set and improved hedging opportunities. • A positive relationship exists between bid-ask spreads and trading volume. ConsequelJ~.ly, a substantial decline in bid-ask spreads in the Turkish markets in the post-listing period is expected. • Stock options trading may enhance stock market efficiency and/or liquidity. • Stock options trading may quicken the price-adjustment process. • Fund managers as well as portfolio managers may diversify their risks through the options trading. • Foreign investors may be more comfortable with the stock options trading opportunity and this may lead at the last stage their investment to be more permanent and long-sided in the market. While the above mentioned outcomes on' stock options trading are all positi\l.~,'thel·e, ' ' ,,:;;“'h,( arc a number of points that should be addressed and concluded on this subject These may be noted as follows: 8 • The methoJ that should be pursued in the determination of risk free interest rate should be set. • The strike priee that would be used in the ”at the money“ option contracts should be specified carefully. • The expiration cycle that would be applicable 111 the option market should be defined. • . The detern,1ination of the use of fixed or variable risk free interest rate in option pricing should be decided. • The interaction of stock option markct and spotl1lnrket of the underlying securities should be closely supervised. o The methods that would be used to estimate and calculate the volatility for the option pricing should be improved and further sophisticated. In conclusion, however, the experience fro111 Turkish stock options introduction is generally expected to be positive, that is the beneficial aspeets of stock options trading is expected to dominate its potential deficiencies. In the light of the information given above, the methodology pursued in this study may be sU111marized as follows: First Chapter presents institutional information about the options markets including the development of options markets, some basic concepts that brings the role of option markets into focus and lay the foundation for an understanding of the types of ,options, individuals and institutions involved in the options markets. It also examines contract specillcations and mechanics of trading. Second Chapter discusses and illustrates the theoretical foundation of option pricing; it establishes the rational principles that must be mastered to understand how options arc priced. it identifies and shows why certain factors alTcct an option's price. It examines option boundary conditions - rules that characterize rational 9ption I)l:i~e's';\ Then it explores the relationship between options that differ by exercise price alone 9 and those that differ only by time to expiration. Finally, it discusses how put and call prices arc related as well as several other important principles. Third Chapter deals with option pricing models, specifically the binomial and BlackScholcs modds and examines some basic concepts on determining option prices. In this context, a large body of academic literature on option pricing is covered. The models range from the relatively simple to the extremely complex. All of the models have much in common, and it is necessary to understand the basic models before moving on to more complex but more realistic ones. This Chapter starts with models developed prior to Black - Scholes Model. Then it examines the binomial option pricing model. After taking the binomial model through several stages .. it moves on to the Black-Scholes model. Later it presents several simple modifications of the Dlack-Scholes model that improve its performance. Here it is argued that the theory of option pricing will need to be modified, perhaps based on the stochastic approach. In the discussion of the option pricing models, we try to prove that sometimes the capital markets cannot respond to fair pricing because of the certain characteristics of the markets. Furthermore in this Chapter the sensitivity analysis concept, thc sensitivity of the option premium to the various factors that affect the option price, namely delta, gamma, theta, vega and rho, is demonstrated. In the Fourth Chapter, the applicability of stock options in the ISE Derivatives Market is discussed. On the first part, the current structure of the financial futures and options market in Turkey is examined by referring to the current regulations and ongoing studies in the capital markets. Then the applicability of the stock options on a single stock is exmninec( ancI the positive ancI negative points of the application is investigated. On the secon.d part, the study has focused on the informational efficiency of Turkish stock markGt and also on stock market volatility from 1\:\'0 different, but complementary perspective. In the first part, the volatility trend and its tenn structure throughout the time is analyzed. In this context, the realized voJatifHy ancI the expected vdatility are calculated and compared under the random walk theory by 10 using the relevant ISE Composite Index closing values ranging between 4 January 1988 and 27 ,December 1996. In the second part, tbe structure or the stock market volatility in Turkey has been investigated both [or the 1988-1996 period as a whole and on a year basis so as to come up with some conclusion about onc of the main parameters l.w~d in option pricing, namely volatility. Moreover, in this part, the volatility, starting from January 2, 1997 \vhen two digits has been removed fro111 the index, is analyzed by using lSE-lOO and ISE-30 Composite Index closing values realized between tbe period 2 January 1997 - 18 June 1997. In this context, lhe impact of volatility on the initiation of stock option markets is discussed. We focus on the relationship between the stock volatility and the financial deVelopment of stock options. In the final part of this Chapter, the potential financial and economic elTccls or option initiation in Turkish Capital Market is covered in detail. In the conclusion, a general evaluation of the following outcomes of the study IS presented: • Exchange-traded stock options are expected to have many benefits including flexibility, leverage, limited risk for buyers employing the right strategies in the ISE Derivatives Market. • Stock options will allow the investors, especially portfolio and fund managers, to participate in price movements without committing the large amount of funds needed to l:,uy stock outright. They can use stock options to hedge a stock position, to acquire or sell stock at a purchase price more favorable than the current market price, or in the case of writing options, to earn premium income. • Stock options will lead foreign capital investment to be more permanent and longsided in thc ISE Stock rvrarket as it will offer a new hedging instrument to foreign investors. • As n technical ciimcnsion, the rSE Derivatives Ivrnrket should set the ~xpiration, cycle, i.e. contraet months and ”at lhe money" slrike prices rationally for stock \' option contracts taking the volatility of the stock market into account. In this respect, wilcn daily, weekly and monthly probability distribution of returns are 11 analyzcd in tbe lSE Stock Market, the probability distribution becomcs skewed to the left starting from I-month investmenl horizon. So option contracts with 1- month cycle may be optimal lo be launched at the first stage of option initiation in ISE Derivalives Market. • Despite their many benefits, stock options involve risk and arc not suitable for everyone. An individual investor or corporation who desires to utilize stock options should have well-defined investment objectives suited to his particular financial situation and a plan for achieving these objectives. The successful use of options require a willingness to learn what they arc, how they work, and what risks are associated with particular options strategies. Finally, armed with an understanding of the fundamentals, ancl with additional information and assistance, both corporate and individual investors seeking expanded investment opportunities in today's markets will find stock options trading challenging, often fast moving, and potentially rewarding in ISE Derivatives Market.
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