Deduction of Market Prices for Futures Derivatives From Projectile Physics With Effects of the Simple Harmonic Oscillations on Equilibrium Price Positions

摘要

cqvip:We investigated the motions associated with prices for futures contracts within financial markets.We aimed to derive the market prices from the physics approach.We used the projectile motion models defined under two distinct conditions(perfect/horizontal and imperfect/drag implication)based on Newton’s and Galileo’s laws of motion.In addition,we applied the simple harmonic oscillatory model to present the movements of prices from the market equilibrium position.Despite that it was more theoretical,we managed to derive the futures price functions and the results showed that futures prices depend largely on market forces of demand and supply and underlying assets price behaviour.Also,we managed to find the terminal prices for the securities given the initial prices,which are a worrying matter to the trading parties.The equilibrium price analysis was done and the simple harmonic model proved to be efficient in such modelling.We managed to identify the price motions to and from the equilibrium point with markets.Results suggested that it is the market frictions(market forces of demand and supply)that propel prices to move.Also,we noted that these forces are responsible for bringing back the prices at equilibrium if the market is left to operate as free.Nevertheless,from the performance comparison of the two models used,results suggested that futures price function from a drag variable is more powerful in modelling the price behaviour for options than the one sorely controlled by market demand and supply forces.And the simple harmonic oscillator model is good at modelling the equilibrium movements of asset prices.Above all,we used the mean absolute deviation(MAD)to validate our futures derivative pricing model.Fortunately,the obtained MAD results supported the efficiency of our model.However,it should not be carelessly taken that the projectile models used are much good at price motions/movements within the market from time to time with a stunted ability to capture in other facts of interest,such as volatility coefficients which pave a research way for other scholars.