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Exponential model for option prices: Application to the Brazilian market

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  • Ramos, Antônio M.T.
  • Carvalho, J.A.
  • Vasconcelos, G.L.

Abstract

In this paper we report an empirical analysis of the Ibovespa index of the São Paulo Stock Exchange and its respective option contracts. We compare the empirical data on the Ibovespa options with two option pricing models, namely the standard Black–Scholes model and an empirical model that assumes that the returns are exponentially distributed. It is found that at times near the option expiration date the exponential model performs better than the Black–Scholes model, in the sense that it fits the empirical data better than does the latter model.

Suggested Citation

  • Ramos, Antônio M.T. & Carvalho, J.A. & Vasconcelos, G.L., 2016. "Exponential model for option prices: Application to the Brazilian market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 445(C), pages 161-168.
    • Handle: RePEc:eee:phsmap:v:445:y:2016:i:c:p:161-168
    DOI: 10.1016/j.physa.2015.11.007
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