Advances in Economics, Management and Political Sciences

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Proceedings of the 2nd International Conference on Financial Technology and Business Analysis

Series Vol. 64 , 28 December 2023

Open Access | Article

A Review of the Option Pricing Model and Further Development

YuLin Luo * 1 , ZhaoYu Wang 2
1 Shanghai International Studies University
2 The High School Affiliated to Renmin University of China

* Author to whom correspondence should be addressed.

Advances in Economics, Management and Political Sciences, Vol. 64, 96-103
Published 28 December 2023. © 2023 The Author(s). Published by EWA Publishing
This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Citation YuLin Luo, ZhaoYu Wang. A Review of the Option Pricing Model and Further Development. AEMPS (2023) Vol. 64: 96-103. DOI: 10.54254/2754-1169/64/20231499.

Abstract

The Black Scholes model and binomial tree model have been the main research objects of scholars in the past fifty years. This article summarizes the optimization process of these two classic option pricing models to understand the different directions of optimizing the models and to provide ideas for future model improvement. Improvements from scholars to the Black-Scholes model mainly focus on the basic model and the relevant variables involved in option pricing, while the optimization of the binomial tree model focuses on the reduction of pricing errors as well as the improvement of model fitting speed. Empirical studies of option pricing models have shown that improved models while enhancing the accuracy of pricing in various financial markets, unavoidably increase computational complexity and reduce efficiency. This article also demonstrates the future integration of financial derivatives pricing models in multiple fields by describing the application of real options in the agriculture, technology, and biology industries.

Keywords

Black-Scholes model, Binomial tree model, Real option

References

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Data Availability

The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.

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Volume Title
Proceedings of the 2nd International Conference on Financial Technology and Business Analysis
ISBN (Print)
978-1-83558-229-9
ISBN (Online)
978-1-83558-230-5
Published Date
28 December 2023
Series
Advances in Economics, Management and Political Sciences
ISSN (Print)
2754-1169
ISSN (Online)
2754-1177
DOI
10.54254/2754-1169/64/20231499
Copyright
28 December 2023
Open Access
This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited

Copyright © 2023 EWA Publishing. Unless Otherwise Stated