Valuation of Agricultural Commodity in an Unstructured Nigerian Market Using Black-Scholes’ Model
Onyegbuchulem Chialuka Adline *
Department of Mathematics, Alvan Ikoku Federal College of Education, Owerri, Nigeria.
Nwobi Felix Noyanim
Department of Statistics, Imo State University, Owerri, Nigeria.
Onyegbuchulem Besta Okey
Department of Statistics, Imo State Polytechnic, Umuagwo, Nigeria.
*Author to whom correspondence should be addressed.
Abstract
This paper investigates the pricing accuracy of the Black-Scholes’ model in an unstructured over-the-counter Nigerian agricultural commodity market. Rice prices were valued using the Black-Scholes’ equation. The model’s predicted prices were compared with the market observed prices. Data for the study was sourced from food prices watch from January, 2017 - February, 2020 from National Bureau of Statistics. The result of the study shows that the prices produced by the Black-Scholes’ model provides a good match with the market observed prices. There is also a positive and significant correlation between the Black-Scholes’ model and market observed prices. Recommendation was made that Black-Scholes’ model should be used as an efficient model for pricing derivatives contracts of Nigerian local securities.
Keywords: Black-scholes’ equation, unstructured market, market prices, rice.