IEEE 2016 International Conference on Industrial Engineering (ICIE 2016)

35 / 2016-01-07 01:01:08

Analysis of Options Pricing using Mathematical Models

Options, Markovian, Black-Scholes Model

The modern financial system that governs the world economy comprises of a variety of financial and market systems. It is influenced by a multitude of internal and external, tangible as well as intangible factors. Many mathematicians have worked on mathematical models to value and price options, futures and other derivatives. Among these mathematical models, the Black-Scholes model which is widely used to determine option prices in the derivatives market was a distinguished work in the field and the mathematicians behind it were awarded the Nobel Prize for Economics in 1997.
However, there is scope for further research in the sector of the financial market and therein lies scope for further investigation into the mathematics behind the pricing of various financial instruments used by traders in the options market.
In this paper the Markovian Trinomial Tree model has been used to price European options. The behavior of the Markovian Trinomial Tree model with respect to the traditional Black-Scholes model has also been discussed.