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    Option Pricing Model with Time-Varying Volatility

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    Date
    1991-10
    Author
    Ncube, Mthuli
    Type
    IDS Working Paper
    Metadata
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    Abstract
    The paper extends the option pricing model of Merlon (1973) with lime-varying volatility of the underlying security. We develop the theoretical option model. Time-varying volatility is constructed by fitting a lime-polynomial to implied volatility values where the order of the polynomial is approximated by the number of options considered. We then predict the option price one day forward and compare the results with the standard Black and Scholcs model. When applied to PT-SE 100 index European options the new model was found to be more accurate titan the Black and Scholcs. Key words: Omion. Time-Varying. Volatility, Black and Scholcs.
    Full Text Links
    Ncube, M. (1991) Option Pricing Model with Time-Varying Volatility. Working Papers in Economics, October, 1991. UZ, Mt Pleasant Harare: Dept of Economics.
    http://opendocs.ids.ac.uk/opendocs/handle/123456789/6655
    URI
    http://hdl.handle.net/10646/2289
    Publisher
    Department of Economics. University of Zimbabwe (UZ.)
    Subject
    Development Policy
    Economic Development
    Finance
    xmlui.dri2xhtml.METS-1.0.item-rights
    http://creativecommons.org/licenses/by-nc-nd/3.0/

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