Application of Projectile Physics and Variable Drag Implications in Determining Market Prices for Futures Derivatives

11 Pages Posted: 2 Jul 2019

Date Written: March 1, 2019

Abstract

This particular study took an econo-physics route to explain the market behaviour for futures contracts in terms of prices and its market life span. We used projectile motion models defined under two distinct conditions (perfect/horizontal and imperfect/ drag implication) based on Newton’s and Galileo’s laws of motion. Despite that it was more theoretical we managed to derive the futures price functions and the results showed that futures prices depends 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 is a worrying matter to the trading parties. 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. Also, 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 paves a research way for other scholars.

Keywords: projectile motion, variable drag, futures derivatives, price

JEL Classification: G13, C60, G12

Suggested Citation

Mushunje, Leonard, Application of Projectile Physics and Variable Drag Implications in Determining Market Prices for Futures Derivatives (March 1, 2019). Available at SSRN: https://ssrn.com/abstract=3412876 or http://dx.doi.org/10.2139/ssrn.3412876

Leonard Mushunje (Contact Author)

Midlands State University ( email )

P Bag 9055
p.bag9055
Gweru, Midlands 9055
Zimbabwe

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