Further Evidence on Pricing Indian Stock Call Options Using Black-Scholes Option Pricing Model

SMC Author

Sankaran Venkateswar

SMC Affiliated Work

1

Status

Faculty

School

School of Economics and Business Administration

Department

Accounting

Document Type

Article

Publication Date

6-2014

Publication / Conference / Sponsorship

Research Bulletin, ICMAI

Description/Abstract

Derivatives' trading was introduced in India during 2001, and the trade value of derivatives is almost three times that of cash market trade values. However, only about 20 percent of the options offered by the National Stock Exchange (NSE) are traded on an active basis. This is perhaps due to the lack of investor education about options and its pricing methodology. It is hoped that research on option pricing in India will enable investors to understand the mechanism of option pricing and its use as a tool to hedge risks. This empirical paper uses more than 95,000 call options to test the validity of the Black-Scholes (BS)model in pricing Indian Stock Options. The results show the robustness of the Black-Scholes model in pricing stock options in India and that pricing is further improved by incorporating implied volatility into the model.

Keywords

Option Pricing, Pricing Call Options in India, Black-Scholes Model

Scholarly

yes

Peer Reviewed

1

ISSN

2230-9241

Volume

39

First Page

185

Last Page

195

Disciplines

Business | Economics

Original Citation

Nagendran, R. & Venkateswar, S. (2014). Further Evidence on Pricing Indian Stock Call Options using Black-Scholes Option Pricing Model. Research Bulletin, ICMAI, 39, 185-195.

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