Research on the Option Pricing of Tesla’s Stock Based on B-S Model and Binomial Tree Method

Huizhe Wang

doi:10.54097/16003678

Authors

Huizhe Wang

DOI:

https://doi.org/10.54097/16003678

Keywords:

Tesla Stock, Call Option, Black-Scholes Model, Binomial Tree, Monte Carlo Simulation.

Abstract

With the announcement of price drop of Tesla’s multiple vehicles during 2022 and 2023, its stock also entered a very unstable age which cause many investors meet significant loss, so did its option prices. In this article, B-S model, Binomial Tree, and Monte Carlo Simulation are implemented to do research on Tesla’s stock price and its call options. The results shows that B-S model has a much lower value of option prices when Binomial Tree does not have multiple division of time period. On the other hand, Monte Carlo Simulation indicates that it would be hard to predict the actual price trend since actual price went to a very low percentile among all simulations. The meaning of this research is to prove Binomial Tree is complementary to B-S model with introduce the concept of time whereas B-S model only uses actual stock prices and calculate the average. Monte Carlo Simulation also warns the investors to continue to pay attention to the news and incidents happened around the companies they invested to.

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