Testing Black Scholes and Garch Model Options on Gold Price Index With Long Strangle Strategy Using 1985-2020 Data

Daniel Erpriandy Maharsasi ()
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Daniel Erpriandy Maharsasi: Telkom University, Gegerkalong, 40152, Bandung, Indonesia Author-2-Name: Riko Hendrawan Author-2-Workplace-Name: Telkom University, Gegerkalong, 40152, Bandung, Indonesia Author-3-Name: Author-3-Workplace-Name: Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:

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Abstract: " Objective - This research examines the implementation of options contracts on gold prices using GARCH and Black Scholes models accompanied by a long strangle strategy. Methodology – This research used 36 years of secondary data for daily gold prices from www.gold.org obtained from the year 1985 to 2020. The implementation of options contracts on gold prices using GARCH and Black Scholes models with long strangle strategy through three types of maturity dates (1-month, 2-months, and 3-months). These results were tested by comparing the average percentage value of the actual options premium price and the options calculated using the AMSE (Average Mean Square Error) methodology, where the smallest percentage value is a more precise reflection of the model. Findings – The research indicates that the results of the error percentage for 1-month, 2-months, and 3-months maturities increased linearly along with the size of the maturity period of the option contract also profit percentage of long strangle strategy for gold price option contract in average 17-27% or below 30%. Novelty – Based on the research result, the long strangle strategy is not the best strategy regarding the gold price option contract, and this study can contribute to current practices for the investor. Also, this research is unique because no research used gold price data for 36 years (daily basis) for the options contracts. Type of Paper - Empirical"

Keywords: Gold Price; Options Contract; Black Scholes; GARCH; Long Strangle; AMSE (search for similar items in EconPapers)
JEL-codes: G11 G13 (search for similar items in EconPapers)
Pages: 15
Date: 2022-12-31
New Economics Papers: this item is included in nep-sea
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Published in Journal of Finance and Banking Review, Volume 7, Issue 3

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Persistent link: https://EconPapers.repec.org/RePEc:gtr:gatrjs:jfbr207

DOI: 10.35609/jfbr.2022.7.3(3)

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