Numerical analysis on transactional Nikkei 225 futures options from June 92 to June 97 using Black's option pricing model

Tan, S. H (1998). Numerical analysis on transactional Nikkei 225 futures options from June 92 to June 97 using Black's option pricing model Master's Thesis, School of Business, The University of Queensland.

       
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Author Tan, S. H
Thesis Title Numerical analysis on transactional Nikkei 225 futures options from June 92 to June 97 using Black's option pricing model
School, Centre or Institute School of Business
Institution The University of Queensland
Publication date 1998
Thesis type Master's Thesis
Total pages 89
Language eng
Subjects 1502 Banking, Finance and Investment
Formatted abstract
This study examines if the Black model is effective as a forecasting tool for market participants to predict and explain the next fair value of the Nikkei options traded in the Singapore International Monetary Exchange (SIMEX).

Transaction data for both Nikkei puts and calls from March 1992 to June 1997 are obtained from SIMEX. The results indicate that the Black model is able to track the market prices reasonably well. However, systematic biases exist. A general European bias is detected. This means that the model generally underprices option relative to market prices. Hoverer, this bias is not reported across all types of options.

For calls, the least mispricing occurs in out-of-the-money calls of short maturity while in-the-money calls of long maturity are most significantly mispriced. A moneyness bias is also detected for calls. It takes the form of underpricing out-of-the-money calls, overpricing at-the- money calls and underpricing in-the-money calls. When all maturities are clustered together, at-the-money calls are least mispriced. A significant maturity bias is also detected for calls. There is a. monotonically increasing relationship between the mean bias and the time to maturity.

For puts the least mispricing is in at-the-money puts of short maturity while the greatest mispricing occurs in out-of-the-money puts of long maturity. A moneyness is also detected for puts. Although most puts of all moneyness are underpriced, tIle pattern of mispricing is similar to calls. The study also observes a maturity bias similar to that of calls.


Document type: Thesis
Collection: UQ Theses (non-RHD) - UQ staff and students only
 
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