Option Pricing

Obiyathulla Bacha and Pattarake Sarajoti

Chapter 9 in Financial Derivatives:Markets and Applications, 2023, pp 323-379 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This chapter examines the pricing of options. Two option pricing models, the Binomial (BOPM) and Black–Scholes option pricing models (BSOPM), are examined in detail. The chapter also analyzes the determinants of option values and explores the relationship among these determinants. Issues related to option pricing are also discussed. In addition to the pricing of options on single stocks, the valuation of stock index options and options on currencies are examined. On completing this chapter, readers should have a good understanding of the logic of the two option pricing models, pricing mechanics, and the determinants of option values.

Keywords: Derivatives; Financial Derivatives; Derivative Markets; Forwards; Futures; Options; Shariah Compliant Derivatives; Islamic Derivatives (search for similar items in EconPapers)
JEL-codes: G1 G10 G11 (search for similar items in EconPapers)
Date: 2023
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