Testing the Performance of Black and Scholes Pricing Model in the Indian Options Market
Journal Title: MUDRA: Journal of Finance and Accounting - Year 2018, Vol 5, Issue 1
Abstract
Since its introduction in 2001, option markets have been growing at a phenomenal rate in India. One of the most basic and popular model used by traders to price an option contract is the Black and Scholes (BS) option pricing model. The model has been tested for its empirical performance by numerous authors throughout the world except India. The results in these studies have shown contradictory biases in the model. The present study is a step towards reducing this gap in the literature, and aims to test the BS model’s performance by employing time series data on NIFTY Index option contracts. In implementing the BS model, volatility of the underlying NIFTY Index is measured through the Random Walk model and the Historical Mean model. Many of the results found are contradictory to the systematic biases found in previous literature. These results are crucial for the traders while valuing the option contracts and creating portfolio diversification in the Indian markets.
Authors and Affiliations
Sonal Sharma
Keywords
Related Articles
- EP ID EP625203
- DOI 10.17492/mudra.v5i01.13033
- Views 212
- Downloads 0
Day of Week Effect in Indian Stock Markets
The present study examines the day of week effect in Indian stock markets. The stock returns data of 17 indices have been collected from BSE (Bombay Stock Exchange) and NSE (National Stock Exchange) for the sample period...
Corporate Governance, Related Party Transactions and Firm Performance: A Panel Data Analysis
Research on examining the relationship between the extent of related party transactions (RPTs) and the firm performance lack consensus. To further investigate this relationship, we use data of a sample of 483 Indian comp...
Literature Review of Life Insurance Markets: Developing a New Perspective to improve the Indian Market
Despite of being the second most populous country, India’s life insurance penetration and density (the two accepted parameters of performance) are low. To look at the causes of underperformance of this vital market, the...
Financial Inclusion: A Correlational Study of Factors in Rural Uttarakhand
Inclusive development is the key to general economic growth for any economy. In any place in the world, providing financial services to this overlooked section of society is a testing assignment. The Government in India...
Cause Related Marketing and Customer Value: The Role of Service Quality and Perceived Risk as Mediators
The present research paper is an attempt to understand the role of mediating variables in the relationship of cause related marketing and customer Value. Based on the literature review, the role of service quality and pe...