Hostname: page-component-7479d7b7d-fwgfc Total loading time: 0 Render date: 2024-07-12T18:33:04.994Z Has data issue: false hasContentIssue false
  • English
  • Français

Black-Scholes Approximations of Call Option Prices with Stochastic Volatilities: A Note

Published online by Cambridge University Press:  06 April 2009

Thomas J. Finucane
Get access Rights & Permissions [Opens in a new window]

Abstract

A piecewise linear weighting function for Black-Scholes implied volatilities is used in conjunction with the Black-Scholes call pricing model to approximate stochastic volatility European call prices. A sensitivity analysis is conducted to compare simulated stochastic volatility call prices to the Black-Scholes prices calculated with the weighted implied volatilities. The analysis indicates that a simple model can provide close approximations to the simulated prices with far less computational effort.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 24 , Issue 4 , December 1989 , pp. 527 - 532
Copyright
Copyright © School of Business Administration, University of Washington 1989

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Beckers, S. “Standard Deviations Implied in Options Prices as Predictors of Future Stock Price Variability.” Journal of Banking and Finance, 5 (09 1981), 363–368.CrossRefGoogle Scholar
Black, F., and Scholes, M.. “The Pricing of Options and Corporate Liabilities.” Journal of Political Economy, 81 (05 1973), 637–659.CrossRefGoogle Scholar
Boyle, P. “Options: A Monte Carlo Approach.” Journal of Financial Economics, 4 (05 1977), 323–338.CrossRefGoogle Scholar
Chiras, D., and Manaster, S.. “The Informational Content of Option Prices and a Test of Market Efficiency.” Journal of Financial Economics, 6 (06/09 1978), 213–234.CrossRefGoogle Scholar
Hull, J., and White, A.. “The Pricing of Options on Assets with Stochastic Volatilities.” Journal of Finance, 42 (06 1987), 281–300.CrossRefGoogle Scholar
Johnson, H., and Shanno, D.. “Option Pricing when the Variance is Changing.” Journal of Financial and Quantitative Analysis, 22 (06 1987), 143–151.CrossRefGoogle Scholar
Latané, H., and Rendleman, R. Jr, “Standard Deviations of Stock Price Ratios Implied in Option Prices.” Journal of Finance, 31 (05 1976), 369–381.CrossRefGoogle Scholar
Patel, J., and Wolfson, M.. “Anticipated Information Releases Reflected in Call Option Prices.” Journal of Accounting and Economics, 1 (08 1979), 117–140.CrossRefGoogle Scholar
Whaley, R. “Valuation of American Call Options on Dividend-Paying Stocks: Empirical Tests.” Journal of Financial Economics, 10 (03 1982), 29–58.CrossRefGoogle Scholar