Analytical Solution of Black-Scholes Equation in Predicting Market Prices and Its Pricing Bias

Main Article Content

Azor, Promise Andaowei
Amadi, Innocent Uchenna

Abstract

This paper is geared towards implementation of Black-Scholes equation in valuation of European call option and predicting market prices for option traders. First, we explained how Black-Scholes equation can be used to estimate option prices and then we also estimated the BS pricing bias from where market prices were predicted. From the results, it was discovered that Black-Scholes values were relatively close to market prices but a little increase in strike prices (K) decreases the option prices. Furthermore, goodness of fit test was done using Kolmogorov –Sminorvov to study BSM and Market prices.

Keywords:
Black- Scholes Model (BSM), call option, bias and market prices.

Article Details

How to Cite
Andaowei, A. P., & Uchenna, A. I. (2020). Analytical Solution of Black-Scholes Equation in Predicting Market Prices and Its Pricing Bias. Asian Journal of Probability and Statistics, 8(2), 17-23. https://doi.org/10.9734/ajpas/2020/v8i230202
Section
Original Research Article

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