A Comparison of the Black-Scholes Option Pricing Model and Its Alternatives

Authors

  • ABM Shahadat Hossain Department of Applied Mathematics, Dhaka University, Dhaka-1000, Bangladesh
  • Maliha Tasmiah Noushin Institute of Natural Sciences, United International University (UIU), Dhaka-1212 , Bangladesh
  • Kamrul Hasan Department of Applied Mathematics, Dhaka University, Dhaka-1000, Bangladesh

DOI:

https://doi.org/10.3329/dujs.v67i2.54581

Keywords:

European Put Options; Black-Scholes Model; Binomial Model; CEV Model.

Abstract

In this paper we estimate European put option price by using awell-established option pricing model, namely, the Constant Elasticity of Variance (CEV) model for the elasticity parameter β< 2 and then compare it with the benchmark Black-Scholes (BS) model. We calculate the Greeks under the CEV model for β=0,1 and 1.95 and compare them with that of the B-S one. Finally, we investigate the put price and Greeks values for at-the-money (ATM), in-the-money (ITM) and out-of-the-money (OTM) situations.

Dhaka Univ. J. Sci. 67(2): 105-110, 2019 (July)

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Published

2019-07-30

How to Cite

Hossain, A. S., Noushin, M. T., & Hasan, K. (2019). A Comparison of the Black-Scholes Option Pricing Model and Its Alternatives. Dhaka University Journal of Science, 67(2), 105–110. https://doi.org/10.3329/dujs.v67i2.54581

Issue

Vol. 67 No. 2 (2019)

Section

Articles