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Efficiency of Black and Scholes Model for Pricing Options at Indian Stock Market


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1 JK Lakshmipat University, Jaipur, India
 

Black and Scholes model was developed for valuing the options in derivatives market in the year 1973. This model became the prime tool for pricing options but because of its deficiencies it forced researchers to find out new model for pricing options (Rubinstein, 1985; Hull and White, 1987; Wiggins, 1987; Dumas, Fleming and Whaley, 1998). Option pricing is proven to be very challenging task during high volatility situations whereas Black and Scholes option pricing model is not proven a successful predictor for determining approximate price of the options. Even empirical evidences support that Black and Scholes model produces some biasness in estimating the prices. The main objective of this paper is to find out the efficiency of the Black and Scholes option pricing model for predicting the option prices at Indian Stock Exchanges for which data set from Indian Stock Exchanges will be chosen, market price of option contracts are considered as sample for the year 2008-2015. The actual market price will be compared with the price derived with the help of Black and Scholes model formula.

Keywords

Options, Black and Scholes Model, Derivatives, Volatilities, Indexation.
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  • Efficiency of Black and Scholes Model for Pricing Options at Indian Stock Market

Abstract Views: 200  |  PDF Views: 117

Authors

Vaibhav Kaushik
JK Lakshmipat University, Jaipur, India

Abstract


Black and Scholes model was developed for valuing the options in derivatives market in the year 1973. This model became the prime tool for pricing options but because of its deficiencies it forced researchers to find out new model for pricing options (Rubinstein, 1985; Hull and White, 1987; Wiggins, 1987; Dumas, Fleming and Whaley, 1998). Option pricing is proven to be very challenging task during high volatility situations whereas Black and Scholes option pricing model is not proven a successful predictor for determining approximate price of the options. Even empirical evidences support that Black and Scholes model produces some biasness in estimating the prices. The main objective of this paper is to find out the efficiency of the Black and Scholes option pricing model for predicting the option prices at Indian Stock Exchanges for which data set from Indian Stock Exchanges will be chosen, market price of option contracts are considered as sample for the year 2008-2015. The actual market price will be compared with the price derived with the help of Black and Scholes model formula.

Keywords


Options, Black and Scholes Model, Derivatives, Volatilities, Indexation.

References