Options are one of the most important derivatives that are trading in most major stock exchanges in today’s world. One of the basic issues in the field of these bonds is valuation and the Binomial model one of the common methods, but it has a number of problems su
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Options are one of the most important derivatives that are trading in most major stock exchanges in today’s world. One of the basic issues in the field of these bonds is valuation and the Binomial model one of the common methods, but it has a number of problems such as the absence of transaction costs and Knightian uncertainty, which have been solved in this research. The purpose in this research is to compare the binomial model under Knightian uncertainty and transaction cost with the Black-Scholes-Merton model. By using these two models, in this research priced options were published since 1397 until the end of 1401. After estimating the theoretical prices of each of the models, it is compared with the market prices, and the amount of prediction error of each of them is calculated using the root mean square error (RMSE). The obtained results show that the Black-Scholes-Merton model has less error than the binomial tree model under Knightian uncertainty and transaction cost. By removing the transaction cost from research model, the error of this model is reduced, and in the symbol-day data that are in the money, this model has a lower error than the Black-Scholes-Merton model.
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