Open AccessA Comparison of the Black-Scholes Option Pricing Model and Its Alternatives
Author(s) -
Abm Shahadat Hossain,
Maliha Tasmiah Noushin,
Kamrul Hasan
Publication year - 2019
Publication title -
the dhaka university journal of science
Language(s) - English
Resource type - Journals
eISSN - 2408-8528
pISSN - 1022-2502
DOI - 10.3329/dujs.v67i2.54581
Subject(s) - greeks , black–scholes model , constant elasticity of variance model , economics , valuation of options , moneyness , mathematical economics , econometrics , elasticity (physics) , benchmark (surveying) , call option , mathematics , financial economics , implied volatility , thermodynamics , volatility (finance) , physics , geodesy , sabr volatility model , geography
In this paper we estimate European put option price by using awell-established option pricing model, namely, the Constant Elasticity of Variance (CEV) model for the elasticity parameter β< 2 and then compare it with the benchmark Black-Scholes (BS) model. We calculate the Greeks under the CEV model for β=0,1 and 1.95 and compare them with that of the B-S one. Finally, we investigate the put price and Greeks values for at-the-money (ATM), in-the-money (ITM) and out-of-the-money (OTM) situations.
Dhaka Univ. J. Sci. 67(2): 105-110, 2019 (July)