AN EMPIRICAL INVESTIGATION OF BLACK- SCHOLES OPTION PRICING MODEL ON NSE NIFTY INDEX OPTIONS

Abstract

The options are the contracts which serve as a tool for risk hedging and price discovery. Therefore, they lead to better allocation of capital. The efficiency of an options market, i.e. the correctness of option prices indicates that it is working well at its well identified functions. In view of this, the efficiency of options market has been of equal interest to the academics as well as practitioners and a number of studies have been carried out across the globe in different markets. Index derivatives (e.g., index options and index futures) become a natural choice to the fund managers as most of the equity funds are created .Amongst all index derivatives, index options play an important role in the economy as they provide a better hedging mechanism to the institutional investors (e.g., mutual fund organizations) compared to that of index futures. These contracts, unlike futures, allow fund managers to take advantage of favourable movements in the market along with the protection against the unfavourable movements.