Rethinking Valuation and Pricing Models

1

The Effectiveness of Option Pricing Models During Financial Crises

Camillo Lento^∗ and Nikola Gradojevic^∗∗

^∗Lakehead University

^∗∗Lakehead University and The Rimini Centre for Economic Analysis

Chapter Outline

1.1 Introduction

1.2 Methodology

1.3 Data

1.4 Results

1.5 Concluding Remarks

References

1.1 Introduction

Options can play an important role in an investment strategy. For example, options can be used to limit an investor’s downside risk or be employed as part of a hedging strategy. Accordingly, the pricing of options is important for the overall efficiency of capital markets.¹ The purpose of this chapter is to explore the effectiveness of the original Black and Scholes (1973) option pricing model (BS model) against a more complicated ...