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Formation and Control of the Risky Large Over-sea Derivative Orders by Chinese Enterprises-Based on the Implied Option and Timing Game |
ZHANG Zong-Cheng, PENG Yuan, HU Jiang-Hua |
1.Huazhong University of Science and Technology, Wuhan, China;2. Guanxi University of Finance and Economics, Nanning, China |
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Abstract This essay designs a simple model to explain the impulsion of the large order and concludes the large order implies an automatically executed free option under the margin trading system. This impulsion strengthens under the following two conditions: in one hand, the operators' performance will be associated with the bonus and penalty for the bonus from the profit is larger than the penalty from the loss; in another hand, there is a company loss value, when the loss increases, the degree of the penalty to the operator can not increase, that is the large order gives the operator a free option. However, the execution of the large order impulsion comes from the defect of the company's internal control mechanism and the absence of the public supervision which are from the over cost that the external supervision section gets the information and supervises; therefore, solutions are in the two aspects mentioned above.
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Received: 16 January 2008
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