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Empirical Testing of Modified Black-Scholes Option Pricing Model Formula on NSE Derivative Market in India

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Author Info

  • Matloob Ullah Khan

    (Research Scholar, Department of Management,Jamia Hamdard, New Delhi, India.)

  • Ambrish Gupta

    (FORE School of Management, New Delhi, India)

  • Sadaf Siraj

    (Department of Management, Jamia Hamdard, New Delhi, India.)

Registered author(s):

    Abstract

    The main objectives of this paper are to incorporate modification in Black-Scholes option pricing model formula by adding some new variables on the basis of given assumption related to risk-free interest rate, and also shows the calculation process of new risk-free interest rate on the basis of modified variable. This paper also identifies the various situations in empirical testing of modified and original Black-Scholes formula with respect to the market value on the basis of assumed and calculated risk-free interest rate.

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    File URL: http://www.econjournals.com/index.php/ijefi/article/download/348/pdf
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    File URL: http://www.econjournals.com/index.php/ijefi/article/view/348/pdf
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    Bibliographic Info

    Article provided by Econjournals in its journal International Journal of Economics and Financial Issues.

    Volume (Year): 3 (2013)
    Issue (Month): 1 ()
    Pages: 87-98

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    Handle: RePEc:eco:journ1:2013-07-9

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    Web page: http://www.econjournals.com

    Related research

    Keywords: Black-Scholes Option Pricing Model; Empirical testing; Suggested modification;

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    References

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    1. Black, Fischer & Scholes, Myron S, 1972. "The Valuation of Option Contracts and a Test of Market Efficiency," Journal of Finance, American Finance Association, vol. 27(2), pages 399-417, May.
    2. Bhattacharya, Mihir, 1980. "Empirical Properties of the Black-Scholes Formula Under Ideal Conditions," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 15(05), pages 1081-1105, December.
    3. Robert C. Merton, 1973. "Theory of Rational Option Pricing," Bell Journal of Economics, The RAND Corporation, vol. 4(1), pages 141-183, Spring.
    4. Galai, Dan, 1977. "Tests of Market Efficiency of the Chicago Board Options Exchange," The Journal of Business, University of Chicago Press, vol. 50(2), pages 167-97, April.
    5. MacBeth, James D & Merville, Larry J, 1979. "An Empirical Examination of the Black-Scholes Call Option Pricing Model," Journal of Finance, American Finance Association, vol. 34(5), pages 1173-86, December.
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