Exponential model for option prices: Application to the Brazilian market
In this paper we report an empirical analysis of the Ibovespa index of the São Paulo Stock Exchange and its respective option contracts. We compare the empirical data on the Ibovespa options with two option pricing models, namely the standard Black–Scholes model and an empirical model that assumes t...
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Published in | Physica A Vol. 445; pp. 161 - 168 |
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Main Authors | , , |
Format | Journal Article |
Language | English |
Published |
Elsevier B.V
01.03.2016
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Subjects | |
Online Access | Get full text |
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Summary: | In this paper we report an empirical analysis of the Ibovespa index of the São Paulo Stock Exchange and its respective option contracts. We compare the empirical data on the Ibovespa options with two option pricing models, namely the standard Black–Scholes model and an empirical model that assumes that the returns are exponentially distributed. It is found that at times near the option expiration date the exponential model performs better than the Black–Scholes model, in the sense that it fits the empirical data better than does the latter model.
•Daily returns on the Ibovespa index follow an exponential distribution.•Comparison is made between the Black-Scholes and the exponential models for option pricing.•Near maturity, option prices are better described by the exponential model.•Possible implications for investment strategies and risk management are briefly discussed. |
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ISSN: | 0378-4371 1873-2119 |
DOI: | 10.1016/j.physa.2015.11.007 |