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Option Pricing Models in the Indian Options Market-An Empirical Study


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1 School of Business Management, Sri Sathya Sal University, India
 

The Black Scholes option pricing formula assumes that the underlying price follows a continuous distribution. However there is evidence of jumps in stock prices as in real data. This paper studies option pricing using three models viz. Black Scholes Model, Merton's Jump Diffusion Model and the Gram Charlier Model on the NSE's Nifty call options. The study concludes that the models generally overprice out-of the-money options and underprice in-the-money options. However, none of the models phced options close to market price.
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  • Option Pricing Models in the Indian Options Market-An Empirical Study

Abstract Views: 235  |  PDF Views: 151

Authors

S. Subramanian
School of Business Management, Sri Sathya Sal University, India
S. Subrat Das
School of Business Management, Sri Sathya Sal University, India

Abstract


The Black Scholes option pricing formula assumes that the underlying price follows a continuous distribution. However there is evidence of jumps in stock prices as in real data. This paper studies option pricing using three models viz. Black Scholes Model, Merton's Jump Diffusion Model and the Gram Charlier Model on the NSE's Nifty call options. The study concludes that the models generally overprice out-of the-money options and underprice in-the-money options. However, none of the models phced options close to market price.