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An empirical study of the oscillator option pricing model and an alternative modification to Black-Scholes

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dc.contributor.authorImene Tabet
dc.contributor.supervisorBelal Ehsan Baaquie
dc.contributor.supervisorMohamed Eskandar Shah Mohd Rasid
dc.date.accessioned2022-10-19T01:43:46Z
dc.date.available2022-10-19T01:43:46Z
dc.date.issued2021
dc.description.abstractThe option pricing model introduced by Black-Scholes in 1974 gained wide acceptance for its simplicity but was inefficient in pricing options as it relied on implied volatility. Despite the evolution of various versions of option pricing models since their seminal work, little progress had been documented on the use of implied volatility, leaving Black-Scholes to be a mathematical identity to calculate the instantaneous implied volatility as it fails to be an efficient pricing equation. Although interpreted as market expectation of future volatility of stocks, implied volatility is literally a black box that captures market information that is not specifically known yet also internally inconsistent (e.g., having a different implied volatility surface for put and call options). The four main objectives of this thesis are: first, to empirically studying the performance of the Oscillator model developed by Baaquie (2019) and examining its efficiency in pricing options as compared to Black-Scholes model. The Oscillator model has only two sets of parameters in addition to the classical form of Black-Scholes; one to model for the underlying stochastic evolution of the stock price, and the second are of market time. Market time is a behavioural parameter introduced by Baaquie and Bouchaud (2004) which scales the time to maturity to capture the market sentiment of the underlying instrument. This thesis also introduced an alternative version of Black-Scholes by adjusting it for market time. Second, the thesis tested the put-call parity violation. Third, the thesis tested three main option hedging Greeks; Delta, Gamma, and Theta, which are partial differentiations of the option pricing equation. Fourth, the thesis discussed the calibrated output and parameters' behaviour to provide insights into the implied volatility information content and gain new understanding of the parametric gap of Black-Scholes particularly in the light of the Oscillator and Black-Scholes models adjusted for market time.en_US
dc.identifier.citationTabet, I. (2021). An empirical study of the oscillator option pricing model and an alternative modification to Black-Scholes (Doctoral dissertation). INCEIF, Kuala Lumpur. Retrieved from https://ikr.inceif.org/handle/INCEIF/3654en_US
dc.identifier.urihttps://ikr.inceif.org/handle/INCEIF/3654
dc.languageEnglish
dc.language.isoengen_US
dc.publisherINCEIFen_US
dc.rights2021. INCEIF
dc.sourceSGPS
dc.subjectOscillator option pricing modelen_US
dc.subjectBlack-Scholesen_US
dc.subjectStochastic evolutionen_US
dc.subjectStock priceen_US
dc.subjectMarket timeen_US
dc.subjectVolatilityen_US
dc.titleAn empirical study of the oscillator option pricing model and an alternative modification to Black-Scholes
dc.typePhDen_US
dlc.maintopicConventional financeen_US
dspace.entity.typePublication
ikr.doctypeTheses
ikr.licenseAvailable in downloadable format
ikr.topic.maintopicConventional financeen_US
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