Citation:

Riko Hendrawan, Tri Suci Indah Sari. "Financial Engineering Using Option Strategy on Pharmaceutical Indonesia State-Owned Enterprises Holding" International Research Journal of Economics and Management Studies, Vol. 3, No. 6, pp. 451-456, 2024.

Abstract:

The purpose of this study is to evaluate the use of long-straddle strategy option contracts on pharmaceutical stateowned enterprises (BUMN, Badan Usaha Milik Negara) by applying the Black Scholes and GARCH option models. The information consisted of the closing stock prices of INAF and KAEF, two holding corporations, from 2002 to 2021. The Black Scholes and GARCH models’ average mean squared error percentages were compared with the Long Straddle Strategy’s implementation to determine the study’s results. The lower the percentage, the better the model. The outcome showed that the Black Scholes model outperformed the GARCH model for a one-month due date option contract, with error values on call options of 6.28% and put options of 4.279% for INAF and error values on call options of 5.24% and 3.29% for GARCH. The Black Scholes model continued to produce superior results for call options with a three-month option contract, with error values of 20.38% for INAF and 14.59% for KAEF. Conversely, the GARCH model was better on the put option, with a 14.69% error value for INAF and 9.50% for KAEF. Following the implementation of the Long Straddle Strategy on the pharmaceutical BUMN holding from 2002 to 2021, INAF reached 93% profitability with an average of 43%, while KAEF reached 78% profitability with an average of 41%.

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Keywords:

Black Scholes, Financial Engineering, GARCH, Option Contract.