Pricing of Options Portfolio Based on Market Information Content

Subject Areas : Financial Knowledge of Securities Analysis

Mohsen rezaeeyan ¹ (Ph.D. Candidate Of Industrial Management -Financial Orientation. Roudehen Branch, Islamic Azad University, Roudehen, Iran)
narges yazdanian ² (Assistant Prof, Roudehen Branch. Islamic Azad University. Roudehen. Iran (Corresponding Arthur))
alireza mirarab ³ (Assistant Prof, Roudehen Branch. Islamic Azad University. Roudehen. Iran)
neda farahbakhsh ⁴ (Assistant Prof, Roudehen Branch. Islamic Azad University. Roudehen. Iran)

Received: 2022-08-03 Accepted : 2022-11-29 Published : 2023-07-23

Keywords: option pricing, Black-Scholes model, Information-Based Model,

Abstract :

Correct and fair options pricing has always been one of the challenges faced by financial researchers and investors. For this purpose, several models have been designed and tested for the pricing of option bonds. All these models have used the past information of the stock price for the pricing of the corresponding option, and the information content of the price from the index trend of market has not been paid attention to. In the current research, the option pricing model is evaluated based on the information content of the market index under the title of information-oriented model, and its performance is compared with the basic Black-Scholes model.The statistical population of the research includes the companies listed in Tehran Stock Exchange during the years 2016-2020, whose price and yield information along with market index values ​​were collected with monthly frequency during this period. To compare the fair valuation of options under the two methods of Black-Scholes and the proposed method of this research, first the stocks with information content from the market are identified through the estimation of the information transfer rate parameter, and then the value of the options for each share during a one-month maturity period is identified, and it was estimated based on two pricing models Black-Scholes and information-oriented.The results showed that the information-oriented model provided a more correct evaluation of the value of options and, therefore, provided a fairer valuation than the Black-Scholes model. According to the findings of the research, the ratio of profitable transactions under the information-oriented model was significantly larger than this ratio under the Black-Scholes model. The use of environmental and market information in the pricing of capital assets such as shares and options can significantly reduce the investment risk and provide higher profitability for investors.

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