Black–Scholes Option Pricing Analysis – Evidence from Selected BSE Companies
Author : Vimala S, Dr. Murugappan, Dr. Stephen Antoni Louis, Gayathri M, Archana Bharathi S and Dharani M
Abstract :
The Black–Scholes model, introduced in 1973, revolutionized the valuation of options in the derivatives market. Although it became the foundational tool for option pricing, its limitations prompted the development of alternative models (Rubinstein, 1985; Hull & White, 1987; Wiggins, 1987; Dumas, Fleming & Whaley, 1998). Pricing options accurately remains a challenging task, particularly during periods of high market volatility, where the Black–Scholes model often fails to provide reliable estimates. Empirical studies have revealed that the model tends to exhibit bias in predicting option prices. This study aims to examine the efficiency of the Black–Scholes model in forecasting option prices within the Indian stock market context. For this purpose, option contract data from the Indian Stock Exchanges thirty days are analyzed. The actual market prices of the options are compared with the theoretical values derived using the Black–Scholes pricing formula to evaluate the model’s predictive accuracy.
Keywords :
Black–Scholes Model, Option Pricing, Derivatives Market, Indian Stock Market, Volatility.
