Identifier

etd-05262006-111821

Degree

Master of Science (MS)

Department

Mathematics

Document Type

Thesis

Abstract

Financial markets in emerging countries are volatile and imperfect, so pricing model under traditional perfect-market frameset may not give reliable price of financial derivatives. The most famous pricing model for stock index future is the cost of carry model. The mis-pricing of cost of carry model inspires lots of following researches. Even transaction costs, dividends, stochastic interest rate, stochastic volatility, market imperfection, and other factors are considered, we still do not obtain a model price consistently better than cost of carry model. But these researches offer important insights, for example, the market needs time to mature and the more complex model usually perform better than cost of carry model in relatively imperfect or volatile markets. Therefore, a model extended from these literatures should still be useful in particular markets. Here I will propose a two-factor stock-index future pricing model includes stochastic volatility of spot index with imperfect financial market framework. The pricing formula may not have a close form solution, so I would use the finite difference method to approximate the solution. The thesis is organized as follows, after introduction I will review the pricing models for the index futures in Chapter 2. In Chapter 3 the two-factor model is derived, and the solution is proposed. The empirical issues about this model are then proposed in Chapter 4. The conclusion and suggestion are in Chapter 5.

Date

2006

Document Availability at the Time of Submission

Release the entire work immediately for access worldwide.

Committee Chair

Hui-Hsiung Kuo

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