Title: An empirical testing of Black-Scholes option pricing model: a study of option moneyness (at-the-money)

Authors: Rinky; Shakti Singh

Addresses: Department of Commerce, Maharshi Dayanand University, Rohtak, Haryana-124001, India ' Department of Commerce, Maharshi Dayanand University, Rohtak, Haryana-124001, India

Abstract: Derivative being a rapidly expanding financial instrument, attracts researchers/investors for analysis/investment. For analysing or making a profit, researchers and investors make assumptions about the call/put option price based on historical volatility on different strike prices of different moneyness. This study is concentrated on ATM moneyness on 'near month contracts' since these contracts' pricing is more accurate because they have the highest probability of being achieved before expiration. This research also examines the precise formula for determining the theoretical pricing of call and put options by executing the paired sample t-test from SPSS software. To determine the pricing accuracy, these BSM theoretical (fair) prices are compared to the NSE (actual) historical prices quoted on the market. The research is conducted on call and put options for five most popular IT stocks listed on the NSE with a monthly expiration for the preceding five years from April 2017 to March 2022.

Keywords: Black-Scholes model; BSM; IT industry; call and put option; ATM moneyness; volatility; near month expiry.

DOI: 10.1504/IJFMD.2023.133462

International Journal of Financial Markets and Derivatives, 2023 Vol.9 No.3, pp.208 - 229

Received: 01 Feb 2023
Accepted: 05 Jun 2023
Published online: 15 Sep 2023 *

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