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● **Emotion-Driven Investing**

Extension Option Challenges and Investment Philosophy of Financial Engineering Students

Background and Necessity of Developing Extension Options

An option is the right to buy or sell a specific underlying asset (e.g., KOSPI 200) at a certain price in the future.
Existing options have fixed maturities, which limits risk management in response to market fluctuations.
Reflecting on historical events such as the Options Shock in November 2010 and quarterly “Witching Day” incidents,
the idea of an option to extend the maturity emerged.
This idea involves paying a certain fee in advance by mutual agreement to extend the maturity.
This process contributes to increasing the probability of success and reducing risk in uncertain investment situations.

Financial Engineering Competition Victory and New Product Ideas

Undergraduate financial engineering students won first place in the securities derivatives competition hosted by the Korea Exchange.
Under the team name “Emotion,” they developed an extension option, or ext mat option, and received high praise from the judges.
The experience of being rewarded in the form of prize money and scholarships led them to consider the possibility of royalty income when actual financial products are listed.
The experience through the competition instilled confidence in students in practical investment and derivatives development.

History and Current Trends in the Derivatives Market

The Korean derivatives market was once among the best in the world, but its size has shrunk due to regulations and various side effects.
Past incidents such as the Deutsche Securities warehouse incident and the subprime mortgage crisis clearly demonstrate the risk factors in the market.
Currently, there is a risk due to the single-lane option maturity structure, but there is a move to compensate for this by introducing various extension options.
The derivatives market, which has a significant impact on the economy, finance, and investment, continues to require innovation.

Investment Philosophy and Win-Rate-Oriented Strategy

Both panelists prioritize win rate over simple rate of return.
Investment is a strategy to compete for long-term success rather than short-term profits, in that repeatable win rate improvement causes compounding effects.
Through their father’s full-time investment experience and various practical experiences within the school,
they seek ways to access various financial products such as stocks, futures, and options.
In investment, the key is to systematically manage risk through actual experience and learning, rather than overconfidence that there is ‘no risk’.

Potential Applications of Deep Learning and Future Financial Technologies

Research is underway on option pricing, ELS pricing, and unfair trading detection using AI technologies such as deep learning.
Deep learning-based models integrate complex mathematics and statistics with computer science,
and are expected to bring innovation to financial product pricing and risk management.
In the future financial market, deep learning will have a major impact on the economy and finance as a whole,
and is expected to be a key tool for developing new investment strategies and derivatives.

Practical Investment Strategies and Advice for Early Investors

In practical investment, they carefully check global news to seek investment ideas and the overall economic situation.
It is important to identify investment opportunities by analyzing industries and economic trends in a top-down manner,
and to increase your win rate by establishing your own investment plan.
Early investors should adapt to the market from a long-term perspective,
not be afraid of failure, and expect steady compounding effects.
Ultimately, continuous learning and growth through experience is the most important investment strategy.

Focusing on core keywords such as economy, finance, investment, derivatives, and deep learning,
financial engineering students presented an innovative derivative called the extension option at a competition.
The need for the introduction of new options has been highlighted through past option shocks and market risk cases.
Both panelists emphasize an investment philosophy that focuses on win rates over returns and aims for long-term compounding effects.
They are also preparing for future financial technologies by researching financial models using the latest technologies such as deep learning.
Top-down analysis and continuous learning through global news are essential for practical investment.

[Related Articles…]
Derivatives Innovation
Investment Strategy

*YouTube Source: [와이스트릿 – 지식과 자산의 복리효과]

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