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A model of stock option prices

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  • Zhongjin Yang
  • Cassidy Yang

Abstract

We postulate that the first order derivative (delta) of the stock option is a logistic function, which is widely used for modelling growth phenomena with bounded conditions in natural and social sciences. The integration of the logistic function yields the universal description (formula) of the option price, which was reported previously. The universal formula shows very good scaling properties that can be used to rescale many stock option prices into one unique curve with only one scaling parameter. The model was tested by examining several widely traded stocks in recent years. As examples, we have successfully rescaled the prices into the universal curve even for the huge market moves, e.g., 2008-09-29 [on the day: DJI down 777.68 (-7%) and SP500 down 106.85 (-9%)] and 2008-10-13 [DJI up 936.42 (11%) and SP500 up 104.13 (12%)].

Suggested Citation

  • Zhongjin Yang & Cassidy Yang, 2011. "A model of stock option prices," International Journal of Financial Markets and Derivatives, Inderscience Enterprises Ltd, vol. 2(4), pages 288-297.
    • Handle: RePEc:ids:ijfmkd:v:2:y:2011:i:4:p:288-297
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