Defining the Black and Scholes approach: a first systematic literature review

Giudice, Manlio Del; Evangelista, Federica; Palmaccio, Matteo

doi:10.1186/s13731-015-0030-8

Cited by 7 publications

(6 citation statements)

References 80 publications

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“…Since then the Black–Scholes model has continued gaining popularity in different domains from business (Corrado & Su, 1996) to construction projects (Barton & Lawryshyn, 2011). Del Giudice, Evangelista, and Palmaccio (2016) in his study attempted to review the practicality of Black–Scholes model in different sectors and his outcome revealed that practical application of Black–Scholes model lies in the business studies sector focusing on the financial markets. A study conducted by Hong (2004) used the data from 1994 to 2003 from Malaysian stock markets and concluded that the BSOPM prices were significantly different and were below the market prices.…”

Section: Discussionmentioning

confidence: 99%

A Study of Black–Scholes Model’s Applicability in Indian Capital Markets

Srivastava¹,

Shastri

2020

Paradigm: A Management Research Journal

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Derivative trading, started in mid-2000, has become an integral and significant part of Indian stock market. The tremendous increase in trading volume in Indian stock market has reflected into high volatility in the option prices. The pricing of options is very complex aspect of applied finance and has been subject of extensive research. Black–Scholes option model is a scientific pricing model which is applied for determining the fair price for option contracts. This article examines if Black–Scholes option pricing model (BSOPM) is a good indicator of option pricing in Indian context. The literature review highlights that various studies have been conducted on BSOPM in various stock exchange across the world with mixed outcome on its relevance and applicability. This article is an empirical study to test the relevance of BSOPM for which 10 most popular industry’s stock listed on National Stock Exchange have been taken. Then the BSOPM has been applied using volatility and risk-free rate. Furthermore, t-test has been used to test the hypothesis and determine the significant relationship between BS model values and actual model values. This study concludes that BSOPM involves significant degree of mispricing. Hence, this model alone cannot be adopted as an indicator for option pricing. The variation from market price is synchronised with respect to moneyness and time to maturity of the option.

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Section: Discussionmentioning

confidence: 99%

A Study of Black–Scholes Model’s Applicability in Indian Capital Markets

Srivastava¹,

Shastri

2020

Paradigm: A Management Research Journal

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“…The first review article on option pricing was published by Smith (1976) who tried to provide detailed description and terminologies of different option pricing models. Giudice et al (2015) tried to evaluate existing literature on BSOPM using articles published between 1999 and 2015. This study adopted the systematic literature review technique to analyze the literature and suggested some directions for future research.…”

Section: Review Of Literaturementioning

confidence: 99%

Review of research on option pricing: a bibliometric analysis

Sharma

Gupta

2023

QRFM

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Purpose Option pricing theory enables computation of the price of an option using different variables associated with the underlying security and options contract. The purpose of this study is to assess research trends that emerged in the field of option pricing. This study reviews existing literature of the option pricing domain, both qualitatively and quantitatively, and identifies potential themes for future research. Design/methodology/approach This study adopts bibliometric analysis method to explore literature published in the option pricing domain. As part of bibliometric analysis, this study considers both descriptive and network analysis to assess publication trends. For descriptive analysis, the “bibliometrix” package proposed by Aria and Cuccurullo (2017) is used and for network analysis, VOS viewer (Van Eck and Waltman, 2017) and Gephi (Bastian et al., 2009) are used. Findings This study identifies research trends, top researchers, articles, journals and contributions from institutions and countries in the option pricing domain. It identifies four clusters that show different directions and also focuses on past studies on the same subject. It explores research gaps by performing an in-depth analysis of existing literature on option pricing and suggests the way forward for research in this area. Originality/value To the best of the authors’ knowledge, no previous studies have attempted to analyze the literature published in the option pricing domain. This study fulfils this research gap by conducting a comprehensive analysis of studies in the option pricing area. This study identifies quality research work published in the domain, research trends, contribution by most relevant researchers, contributions across geographies and institutions and the connections among these aspects. This study also identifies important themes and provides directions for future research.

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“…Created in 1973 by economists Fischer Black and Myron Scholes, the Black-Scholes model (BSM) became the most used methodology for assessing options and it fostered the development of the derivatives market (Del Giudice et al, 2015;Morreale et al, 2017;Bacelar et al, 2018). The idea behind BSM was a portfolio composed of two assets: the first was called the underlying asset, and the other was a risk-free asset.…”

Section: Real Options Theorymentioning

confidence: 99%

Comparative evaluation of investment analysis methods: an application in renewable energy auctions between 2011 e 2015

Caldas

Júnior

2021

ReA UFSM

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Purpose - This work aims to analyze the assertiveness of net present value (NPV) and real options theory (ROT), at the moment of decision making for investments in renewable energy projects, considering the 244 winning projects in the auctions of reserve energy that occurred between 2011 and 2015.Design/methodology/approach –This is a quantitative study that used real data from 150 wind power and 94 photovoltaic projects available on ANEEL´s website. For data analysis, the confusion matrix, the area under the ROC Curve and the Kappa Index were used.Findings – It was concluded that NPV is more effective for recommendations to invest in projects with chances to be successful, while ROT is more accurate in suggesting against investing in projects with propensity for failure. It was also found that the degree of agreement between the two techniques is substantial and determined by the level of volatility of real options.Research limitations/implications – The limitations of this study refer to the difficulties of identifying the reasons that motivated failures in the projects.Originality/value – Theoretically, this work contributes to identify the characteristics that effectively differentiate ROT from NPV at the time of decision making. Empirically, this work contributes to doing an ex-post analysis of the projects.

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Defining the Black and Scholes approach: a first systematic literature review

Cited by 7 publications

References 80 publications

A Study of Black–Scholes Model’s Applicability in Indian Capital Markets

A Study of Black–Scholes Model’s Applicability in Indian Capital Markets

Review of research on option pricing: a bibliometric analysis

Comparative evaluation of investment analysis methods: an application in renewable energy auctions between 2011 e 2015

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