TESTING OF THE BLACK SCHOLES AND GARCH MODELS IN LQ45 USING LONG STRADDLE STRATEGY IN 2009-2018

Riko Hendrawan, Anggadi Sasmito

Abstract


The purpose of this study is to examine the implementation of option contracts using Black Scholes and GARCH on the LQ45 index using the long straddle strategy. This study uses time-series data as a time frame for conducting research, using a sample of closing price data for the LQ 45 daily index for 2009-2018. For the test the model, we used the secondary data of the closing stock price index from February 28, 2009 to March 31, 2019The results of this study are seen by comparing the average percentage value of Average Mean Squared Error (AMSE) of Black Scholes and GARCH with the application of a long straddle strategy, where the smaller the percentage value, the better the model will be. Within one month of option contract due date, Black Scholes is better than GARCH, with an error value on the call option of 2.77% and the put option of 1.56%. Within two months of option contract due date, GARCH is better than Black Scholes, with an error value on the call option of 8.12% and the put option of 4.00%. Within three months of option contract due date, Black Scholes is better than GARCH, with an error value on the call option of 12.38% and on the put option of 5.50%. The long straddle strategy in the LQ45 index only reached a maximum of 60% of possible profits, with an average of around 30% possible profits.


Keywords


Black Scholes, GARCH, Option Contract, Long Straddle

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DOI: http://dx.doi.org/10.24198/jbm.v22i1.487

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This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.