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Options and futures in the fishpool market : a brief analysis

Lattanzio, Gabriele
Master thesis
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URI
http://hdl.handle.net/11250/302145
Date
2015
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  • Master Thesis [3258]
Abstract
Since 2006, FishPool ASA has been operating as a regulated market place for the trading of futures and options written on the spot price of fresh farmed salmon. The impressive increase of the trading volums experienced by this young has not been homogenous, leading to a well-developed market for futures contracts, while the options market still suffer significant liquidity problem. It is difficult to identify the reasons behind the different trend characterizing options and futures markets, but two main drivers can be identified. From one side, the lack of understanding among the market practitioners of the financial profile of the offered Asian American option contracts, on the other side the absence in the literature of a model able to completely describe the characteristics of this option contracts disincentive institutional investors and hedgers to get into a market they are not able to completely understand.

This Master Thesis investigates the main characteristics of the salmon market and the available derivatives pricing models in order to identify some of the reasons underlying the observed liquidity problem in the options market. In particular, after a brief literature review (Part II) and an empirical analysis of the salmon market (Part III), in Part IV (and in the Appendixes) I will re derive the pricing model proposed by Bjerksund (1991) for both futures and options contracts, underlying that while the available futures pricing formulas allow to efficiently manage trading and risk management strategies, the most common options pricing formulas rely on too strong assumption and thus are not able to well represent the real market structure.

Thus, in the conclusion it is suggested that FishPool ASA might reconsider the typology of the offered options contract, switching to plain vanilla derivatives that might allow to fast up to expansion of this still limited market.

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