• Korea Trade Review
• /
• v.41 no.5
• /
• pp.113-138
• /
• 2016

This study analyzed the impact when Korea expands Chinese Renminbi(RMB) as invoicing currency on the trade to China using Monte-Carlo simulation. Primarily, we analyzed the impact on the balance of Korean Won(KRW) converted from RMB in a case that simulated exchange rate(Korean won to Chinese Renminbi) and realized historically identical probability distribution but in different stochastic process. In addition, we developed the simulation of the case where the volatility of RMB to KRW exchange rate abnormally expanded. The major results found in this study are as follows. First, in the case where RMB exchange rate simulated in identical probability distribution but in the different stochastic process, no matter how much RMB was utilized as invoicing currency, expansion of the RMB exchange rate and exchange rate volatility operated as positive mechanism to increase the KRW converted balance. Secondly, while the expansion of US dollar exchange rate volatility positively influences the balance on average, it caused a polarization of balance, which makes under-average-balance lower and over-average-balance higher. On the contrary, the expansion of RMB exchange rate volatility even shows a similar mechanism but the impact is more moderate than USD exchange rate volatility. Thirdly, as RMB exchange rate volatility expanded, the balance of translated invoicing currency (RMB) declined, whilst the negative impact of RMB exchange rate volatility on balance of translated invoicing currency(RMB) showed diminishing effect. Lastly, the influence of RMB's exchange rate volatility through RMB usage ratio trends similar to bull spread strategy, which is a combination of call option with put option. Therefore, since RMB usage in invoicing currency could spawn a hedging effect, corporations might utilize RMB as a strategic device for maximizing profits.

• Journal of the Korean Mathematical Society
• /
• v.43 no.4
• /
• pp.845-858
• /
• 2006

We present two approaches of the stochastic interest rate European option pricing model. One is a bond numeraire approach which is applicable to a nonzero value asset. In this approach, we assume log-normality of returns of the asset normalized by a bond whose maturity is the same as the expiration date of an option instead that of an asset itself. Another one is the expectation hypothesis approach for value zero asset which has futures-style margining. Bond numeraire approach allows us to calculate volatilities implied in options even though stochastic interest rate is considered.

• East Asian mathematical journal
• /
• v.40 no.1
• /
• pp.63-74
• /
• 2024

Timer options are financial instruments proposed by Société Générale Corporate and Investment Banking in 2007. Unlike vanilla options, where the expiry date is fixed, the expiry date of timer options is determined by the investor's choice, which is in linked to a variance budget. In this study, we derive a pricing formula for hybrid options that combine timer options, digital options, and power options, considering an environment where volatility of an underlying asset follows a fast-mean-reverting process. Additionally, we aim to validate the pricing accuracy of these analytical formulas by comparing them with the results obtained from Monte Carlo simulations. Finally, we conduct numerical studies on these options to analyze the impact of stochastic volatility on option's price with respect to various model parameters.

• The Transactions of The Korean Institute of Electrical Engineers
• /
• v.64 no.6
• /
• pp.852-856
• /
• 2015

Demand side management (DSM) program has been frequently used for reducing the system peak load because it gives utilities and independent system operator (ISO) a convenient way to control and change amount of electric usage of end-use customer. Planning and operating methods are needed to efficiently manage a DSM program. This paper presents a planning method for DSM program. A planning method for DSM program should include an electric load forecasting, because this is the most important factor in determining how much to reduce electric load. In this paper, load forecasting with the temperature stochastic modeling and the sensitivity to temperature of the electric load is used for improving load forecasting accuracy. The proposed planning method can also estimate the required day, hour and total capacity of DSM program using Monte-Carlo simulation. The results of case studies are presented to show the effectiveness of the proposed planning method.

• ETRI Journal
• /
• v.35 no.5
• /
• pp.849-858
• /
• 2013

In this paper, we propose a new adaptive single model to track a maneuvering target with abrupt accelerations. We utilize the stochastic differential equation to model acceleration of a maneuvering target with stochastic volatility (SV). We assume the generalized autoregressive conditional heteroscedasticity (GARCH) process as the model for the tracking procedure of the SV. In the proposed scheme, to track a high maneuvering target, we modify the Kalman filtering by introducing a new GARCH model for estimating SV. The proposed tracking algorithm operates in both the non-maneuvering and maneuvering modes, and, unlike the traditional decision-based model, the maneuver detection procedure is eliminated. Furthermore, we stress that the improved performance using the GARCH acceleration model is due to properties inherent in GARCH modeling itself that comply with maneuvering target trajectory. Moreover, the computational complexity of this model is more efficient than that of traditional methods. Finally, the effectiveness and capabilities of our proposed strategy are demonstrated and validated through Monte Carlo simulation studies.

• East Asian Economic Review
• /
• v.21 no.2
• /
• pp.167-197
• /
• 2017

I build a small open economy (SOE) dynamic stochastic general equilibrium (DSGE) model to investigate the effect of a heterogeneous wage contract between regular and temporary workers on a macroeconomic volatility in a financially fragile economy. The imperfect financial market condition is captured by a quadratic financial adjustment cost for borrowing foreign assets, and the labor market friction is captured by a Nash bargaining process which is only available to the regular workers when they negotiate their wages with the firms while the temporary workers are given their wage which simply equals the marginal cost. As a result of impulse responsesto a domestic productivity shock, the higher elasticity of substitution between two types of workers and the lower weight on the regular workers in the firm's production process induce the higher volatilities in most variables. This is reasoned that the higher substitutability creates more volatile wage determination process while the lower share of the regular workers weakens their Nash bargaining power in the contract process.

• Korean Management Science Review
• /
• v.31 no.1
• /
• pp.49-61
• /
• 2014

We investigate the hedging effectiveness of incorporating single-stock futures into the corresponding stocks. Investing in only stocks frequently causes too much risk when market volatility suddenly rises. We found that single-stock futures help reduce the variance and risk levels of the corresponding stocks invested. We use daily prices of Korean stocks and their corresponding futures for the time period from December 2009 to August 2013 to test the hedging effect. We also use system trading technique that uses automatic trading program which also has several simulation functions. Moving average strategy, Stochastic's strategy, Larry William's %R strategy have been considered for hedging strategy of the futures. Hedging effectiveness of each strategy was analyzed by percent reduction in the variance between the hedged and the unhedged variance. The results clearly showed that examined hedging strategies reduce price volatility risk compared to unhedged portfolio.

• The Korean Journal of Financial Management
• /
• v.22 no.2
• /
• pp.43-69
• /
• 2005

This study provides empirical evidence that the stochastic beta model based on Bayesian analysis outperforms the existing conditional beta model and GARCH model in terms of the estimation accuracy and the explanatory power in the cross-section of stock returns in Korea. Betas estimated by the stochastic beta model explain $30{\sim}50%$ of the cross-sectional variation in stock-returns, whereas other time-varying beta models account for less than 3%. Such a difference in explanatory power across models turns out to come from the fact that the stochastic beta model absorbs the variation due to the market anomalies such as size, BE/ME, and idiosyncratic volatility. These results support the rational asset pricing model in that market anomalies are closely related to the variation of expected returns generated by time-varying betas.

• Journal of Electrical Engineering and Technology
• /
• v.12 no.3
• /
• pp.1064-1072
• /
• 2017

The power of controlled generators in microgrids randomly fluctuate because of the stochastic volatility of the outputs of photovoltaic systems and wind turbines as well as the load demands. To address and dispatch these stochastic factors for daily operations, a dynamic economic dispatch model with the goal of minimizing the generation cost is established via chance-constrained programming. A Monte Carlo simulation combined with particle swarm optimization algorithm is employed to optimize the model. The simulation results show that both the objective function and constraint condition have been tightened and that the operation costs have increased. A higher stability of the system corresponds to the higher operation costs of controlled generators. These operation costs also increase along with the confidence levels for the objective function and constraints.

• Communications for Statistical Applications and Methods
• /
• v.21 no.4
• /
• pp.327-334
• /
• 2014

Various modified GARCH(1, 1) models have been found adequate in many applications. We are interested in their continuous time versions and limiting properties. We first define a stochastic integral that includes useful continuous time versions of modified GARCH(1, 1) processes and give sufficient conditions under which the process is exponentially ergodic and ${\beta}$-mixing. The central limit theorem for the process is also obtained.