Molintas, Dominique Trual (2021): Black Scholes Model.

PDF
MPRA_paper_110124.pdf Download (590kB)  Preview 
Abstract
BlackScholes is a pricing model applied as the reference in the derivation of fair price—or the theoretical value for a call or a put option. A call is defined as the decision to buy actual stock at a set price, defined as the strike price; and by a scheduled expiration date. A put option is defined as the opportunity contract providing the owner the right but not the obligation, to sell an exact amount of underlying security at a stated price within a specific time frame. The call or put option in the Black Scholes model is based on six variables: strike price and underlying stock price, time and type of option, volatility and riskfree rate. The application of the model assumes that these stock or securities recognise its corresponding custom derivatives held to expiration. It is sufficient to state that the BlackScholes treats a call option as an informal agreement defined as a forward contract with expectation to deliver stock at a contractual price, otherwise indicative in the strike price.
Typically the BlackScholes model is utilised to price European options (y p) that represents investment options in a selection of financial assets earning riskfree interest rates. In strictness, the model presents the option price as a function of stock price volatility: High volatility is tantamount a high premium price on the option.
Item Type:  MPRA Paper 

Original Title:  Black Scholes Model 
English Title:  Black Scholes Model 
Language:  English 
Keywords:  BlackScholes model, strike price, volatility , riskfree rate, stock price volatility 
Subjects:  E  Macroeconomics and Monetary Economics > E4  Money and Interest Rates > E47  Forecasting and Simulation: Models and Applications G  Financial Economics > G1  General Financial Markets > G12  Asset Pricing ; Trading Volume ; Bond Interest Rates 
Item ID:  110124 
Depositing User:  Ms Dominique Trual Molintas 
Date Deposited:  13 Oct 2021 04:47 
Last Modified:  13 Oct 2021 04:47 
References:  ASHURI, B., Kashani, H., Molenaar, K. R., Lee, S., & Lu, J. 2012. Riskneutral pricing approach for evaluating BOT highway projects with government minimum revenue guarantee options. Journal of Construction Engineering & Management. 138(4), p.545–557. BACHELIER, L. 1900. Theory of speculation. In: COOTNER, (ed). The random character of stock market prices, Cambridge: MIT Press. BACKUS, D., S. Foresi, K. Li and L. Wu. 1997. Working Paper: Accounting for biases in BlackScholes. New York: Stern School of Business. BENAROCH, M., & Kauffman, R. 1999. A case for using real options pricing analysis to evaluate information technology project investments. Information Systems Research. 10(1), p.70–86. BENAROCH, M., Shah, S., & Jeffery, M. 2006. On the valuation of multistage information technology investments embedding nested real options. Journal of Management Information Systems. 23(1), p.239–261. BERNARD, V. L. and Thomas, J.K. 1990. Evidence that stock prices do not fully reflect the implications of current earnings for future earnings. Journal of Accounting and Economics. 13, p.305–340. BILIR, H. 2016. Determination of Optimal Portfolio by Using Tangency Portfolio and Sharpe Ratio. Research Journal of Finance and Accounting. 7(5), pp.22222847. BONESS, A. 1964. Elements of a theory of stock option value. Journal of Political Economy. 72, p.163–175. BRONZIN, V. 1908. Theorie der Prämiengeschäfte. Leipzig und Wien: Verlag Franz Deticke. CAPELLEBLANCARD, G., E. Jurczenko and B. Maillet. 2001. The approximate option pricing model: Empirical performances on the French market. Paris: Cahiers de la MSE. CHAN, L., Jegadeesh, N. and Lakonishok, J. 1996. Momentum strategies. Journal of Finance., p.1681–1714. CORRADO, C. and T. Miller. 1996. Efficient optionimplied volatility estimators. Journal of Futures Markets. 16(3), pp.247272. DAMPTEY, I. 2017. Determining whether the Geometric Brownian Motion Model is an appropriate model for forecasting stock prices on the Ghana Stock Exchange. Research Journal of Finance and Accounting. 8(4), pp.22221697. DE LA VEGA, J. 1688. Confusión de Confusiones. In: Fridson. M, (ed). Extraordinary Popular Delusions and the Madness of Crowds & Confusión de Confusiones, New York: Wiley Publishing. DEUTSCH, H. 1910. Arbitrage in bullion, coins, bills, stocks, shares and options. New York: Pedia Press. DHARAN, B.G, and Ikenberry, D. 1995. The longrun negative drift of postlisting stock returns. Journal of Finance., p.1547–1574. DUMAS, B., J. Fleming and R. Whaley. 1998. Implied volatility functions: Empirical tests. Journal of Finance. 53(6), pp.20592106. DYL, E.A., Yukse, H. Z and Zaynutdinova, G.R. 2019. Price reversals and price continuations following large price movements. Journal of Business Research. 95(36), pp.112. EJAZ, A. and Polak, P. 2018. Australian Stock Exchange and subvariants of price momentum strategies. Investment Management and Financial Innovations. 15(1), pp.224235. FORNER, C., Muradoglu, Y. and S. Sivaprasad. 2018. Enhancing momentum investment strategy using leverage. Journal of Forecasting. 37(5), pp.573588. FORTUNE, P. 1996. Anomalies in Option Pricing: The BlackScholes Model Revisited. New England Economic Review., pp.1740. GANN, W. D. 1937. How to make profits in puts and calls. Pomeroy: W.D. Gann's Books and Educational Materials. GÖKÇEN, U and T. Post. 2018. Trading volume, return variability and shortterm momentum. The European Journal of Finance. 24, pp.231249. HESTON, S. and Nandi. 2000. A closedform GARCH option pricing model. The Review of Financial Studies. 13(3), pp.585625. HIGGINS, L. R. 1902. The PutandCall. London: Wilson. KAIRYS, J. and Valerio, N. 1997. The market for equity options in the 1870s. Journal of Finance. LII(4), p.1707 – 1723. LOUGHRAN, T., and Ritter,J. 1995. The new issues puzzle. The Journal of Finance. 50, p.23–52. MARATHE, R., and Ryan, S. 2005. One the validity of the geometric Brownian motion assumption. The Engineering Economist: A Journal Devoted to the Problems of Capital Investment. 50(2), pp.159192. MICHAELY, R., and K. Womack. 1999. Conflict of interest and the credibility of underwriter analyst recommendations. Review of Financial Studies. 12, p.653–86. MILLS, F. 1927. The behaviour of prices. Cambridge: National Bureau of Economic Research. NELSON, S. A. 1904. The A B C of options and arbitrage. New York: The Wall Street Library. PARK, T., Kim, B., and H. Kim. 2013. Real option approach to sharing privatisation risk in underground infrastructures. Journal of Construction Engineering and Management. 139(6). REINACH, A. M. 1961. The nature of puts and calls. New York: The Bookmailer. SEYHUN, H. Nejat. 1997. Investment Intelligence: Tips from Insider Trading. Cambridge: MIT Press. SPRENKLE, C. 1961. Warrant prices as indicators of expectations and preferences. Yale Economics Essays. 1(2), p.178–231. TALEB, N. 1997. Dynamic hedging. New York: John Wiley & Sons. WIKLUND, E. 2012. Asian option pricing and volatility. Denmark: Swedish Essays. YANG, Y., Gebka B. and R. Hudson. 2019. Momentum effects in China: A review of the literature and an. Research in International Business and Finance. 3(47), pp.78101. 
URI:  https://mpra.ub.unimuenchen.de/id/eprint/110124 