Empirical Testing of Modified Black-Scholes Option Pricing Model Formula on NSE Derivative Market In India

Abstract

The main objectives of this paper are to incorporate modification in Black-Scholes option pricing model formula by adding some new variables on the basis of given assumption related to risk-free interest rate, and also shows the calculation process of new risk-free interest rate on the basis of modified variable. This paper also identifies the various situations in empirical testing of modified and original Black-Scholes formula with respect to the market value on the basis of assumed and calculated risk-free interest rate. Keywords: Black-Scholes Option Pricing Model; Empirical testing; Suggested modification JEL Classifications: C30; G13; G17