The Practical Applicability Of Black Scholes Model AndMerton’s Model On Option Pricing In INDIA

Titled “A Comparative study on the practical applicability of Black Scholes Model and Merton’s model on option pricing in INDIA” this study aims at analysing both the model i.e. Black Scholes and Merton’s model and which is more applicable in INDIA for EUROPEAN call option. This research paper tries to explore the applicability of both the models in INDIAN options market. Most of the investors are primarily concentrated with investment in the stock market and leaving the derivative market unexplored. We have taken the underlying asset as stock and only call option. This paper explains how the call option premium is calculated at the end of the maturity, by assuming time period, interest rate, discounting factor, anti-logarithm, natural logarithm etc the call option premium is calculated. Here we are taking two companies from three industries total of 6 companies to predict which model holds well in Indian call option, Using both the models we calculate call option premium and compare it with the actual call option premium the difference is calculated in percentage for both the models and compared, whichever model has lower percentage that model is more favourable in predicting the call option premium, after a few assumptions, calculations, interpretations, and the answers are favourable to Merton’s model.