 EMPIRICAL STUDY ON THE PERFORMANCES OF BLACK-SCHOLES MODEL FOR EVALUATING EUROPEAN OPTIONSEmilia Vasile () and Dan Armeanu () Journal for Economic Forecasting, 2009, vol. 6, issue 1, 48-62 Abstract: In this study we aim at analyzing the way the model Black-Scholes works in practice. The data used for analysis refer to European-type call options having as supportassets the CAC-40 money-market index. Our approach will be structured in two parts. The first will be dedicated to an estimate of daily implicit volatilities, which is of those values of volatilities which, once applied in the Black-Scholes evaluation formula, minimize the sum of square errors given by the model. Once this problem is solved, we will analyze the relationship existing between implicit volatility moneyness and due term of options, that is the so-called volatility smile. The second part of the study will have as core the analysis of errors provided by the Black-Scholes model, which will be studied, given moneyness and due-term of options. Keywords: options; Black-Scholes model; implicit volatility; moneyness; due term; volatility smile; volatility smirk; evaluation error (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:rjr:romjef:v:6:y:2009:i:1:p:48-62 Access Statistics for this article Journal for Economic Forecasting is currently edited by Lucian Liviu Albu and Corina Saman More articles in Journal for Economic Forecasting from Institute for Economic Forecasting Contact information at EDIRC. |
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