{"title":"Effectiveness of deterministic option pricing models: new evidence from Nifty and Bank Nifty Index options","authors":"","doi":"10.1057/s41260-024-00348-1","DOIUrl":null,"url":null,"abstract":"<h3>Abstract</h3> <p>This research delves into the empirical performance of deterministic option pricing models in the dynamic financial landscape of India. The primary focus is on uncovering pricing discrepancies and discerning whether these disparities arise from inherent limitations in the theoretical foundations of the models or are influenced by the trading behaviors of market participants. The investigation centers on the analysis of call and put option contracts for the Nifty Index and Bank Nifty Index, both extensively traded on the National Stock Exchange (NSE) of India. The study’s findings highlight that models developed to address the theoretical constraints of the benchmark Black–Scholes model demonstrate noteworthy performance. However, the complexity of these models does not consistently translate into enhanced pricing efficiency. Notably, the Black–Scholes and Practitioner Black–Scholes models exhibit superior performance across various moneyness-maturity categories. Furthermore, the research underscores the substantial impact of option contract liquidity on the efficiency of the pricing models. Specifically, highly traded at-the-money and out-of-the-money option contracts exhibit a higher level of pricing accuracy.</p>","PeriodicalId":45953,"journal":{"name":"Journal of Asset Management","volume":null,"pages":null},"PeriodicalIF":1.5000,"publicationDate":"2024-02-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Asset Management","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.1057/s41260-024-00348-1","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q3","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
This research delves into the empirical performance of deterministic option pricing models in the dynamic financial landscape of India. The primary focus is on uncovering pricing discrepancies and discerning whether these disparities arise from inherent limitations in the theoretical foundations of the models or are influenced by the trading behaviors of market participants. The investigation centers on the analysis of call and put option contracts for the Nifty Index and Bank Nifty Index, both extensively traded on the National Stock Exchange (NSE) of India. The study’s findings highlight that models developed to address the theoretical constraints of the benchmark Black–Scholes model demonstrate noteworthy performance. However, the complexity of these models does not consistently translate into enhanced pricing efficiency. Notably, the Black–Scholes and Practitioner Black–Scholes models exhibit superior performance across various moneyness-maturity categories. Furthermore, the research underscores the substantial impact of option contract liquidity on the efficiency of the pricing models. Specifically, highly traded at-the-money and out-of-the-money option contracts exhibit a higher level of pricing accuracy.
期刊介绍：
The Journal of Asset Management covers:new investment strategies, methodologies and techniquesnew products and trading developmentsimportant regulatory and legal developmentsemerging trends in asset managementUnder the guidance of its expert Editors and an eminent international Editorial Board, Journal of Asset Management has developed to provide an international forum for latest thinking, techniques and developments for the Fund Management Industry, from high-growth investment strategies to modelling and managing risk, from active management to index tracking. The Journal has established itself as a key bridge between applied academic research, commercial best practice and regulatory interests, globally.Each issue of Journal of Asset Management publishes detailed, authoritative briefings, analysis, research and reviews by leading experts in the field, to keep subscribers up to date with the latest developments and thinking in asset management.Journal of Asset Management covers:asset allocation hedge fund strategies risk definition and management index tracking performance measurement stock selection investment methodologies and techniques portfolio management and weighting product development and innovation active asset management style analysis strategies to match client profiles time horizons emerging markets alternative investments derivatives and hedging instruments pensions economics
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