Using financial derivatives in the Lorestan market of building stones

In the market of building stones, the volatility of stone prices can expose the consumers to the risk and uncertainty, moreover it can make trouble for suppliers, traders and all employed people in the stone industry. Using the option contracts is an efficient way to control the price risk. in this article, we define European and Asian option contracts on the Lorestan building and ashlar stones and then we calculate the fair values of options. Since the building stones are exposed to a high amount of price oscillations, the volatility parameter for these productions is a large number and this causes to increase the values of European options and consequently the attraction of European option contracts decreases. In Asian options, the payoff depends on the average price of the underlying asset over a certain period of time, hence these kinds of options have less amount of risk rather than European options; accordingly, for assets with high price oscillations, the Asian options are more suitable. European option values can be easily computed by the Black-Sholes formula, whereas the valuation of Asian options is a more complicated problem and needs numerical techniques. In this paper the monte-carlo simulation has been applied to calculate the Asian option values for assets with high price oscillations, the Asian options are more suitable. European option values can be easily computed by the Black-Sholes formula, whereas the valuation of Asian options is a more complicated problem and needs numerical techniques. In this paper the monte-carlo simulation with 5000 paths has been applied to calculate the Asian option values. The interest rate is supposed to be r=.20 and the life time of the option is assumed to be one year. We use the prices of ashlar stones at a 48 months period to calculate the historical volatility. We compute the values of options for different strike prices. The results show that the Asian option values are lesser than similar European option values which causes the Asian options to be more attractive for investors.