2012•RePEc: Research Papers in EconomicsOpen access

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

Matloob Ullah Khan, Ambrish Gupta, Sadaf Siraj

Abstract

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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Key concepts: Black–Scholes model, Derivative (finance), Economics, Valuation of options, Financial economics, Econometrics, Mathematics, Volatility (finance)