A Comparison of the BS-Model, the V-Model and the G-Model in Estimating Call Option Prices
DOI:
https://doi.org/10.54097/wp81tf24Keywords:
Black Scholes-Model, Vasicek-Model, GARCH-Model, Monte Carlo Simulation, Call Option Pricing.Abstract
This research used Monte Carlo Simulation (MCS) to simulate stock paths, which is used in estimating the Call Option Prices for the Black Scholes-Model (BS-Model), the Vasicek-BS-Model (write the V-Model for short) and the GARCH-BS-Model (write the G-Model for short). Then, the accuracies of the three models are compared using the MSE test (MSE-test), based on the estimated Call Option Prices and the actual Call Option Prices of the three models. The results revealed that the G-Model is the most accurate model, and that V-Model doesn’t improve the BS-Model. The significance of this research is to realize that improving the interest rate component won’t improve the accuracy of the BS-Model in estimating Call Option Prices whereas improving the volatility component.
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