Ballpark of Black Schole-Merton Model in Option Pricing

Options are instruments which have the special property of limiting the down side risk, while not limiting the upside potential, thus their use in hedging. The share of the options market in the Indian capital market has increase 64% in just over a decade. This research paper emphasizes on the valuation of European call options by considering two industries comprising three companies respectively with 30 days of option expiry period from 2013 to 2015. Assessing the prices of two industries for particular period expiry with selected years for the study. It also explores relevance and accuracy of Black-Scholes Merton Option pricing model in predicting option prices. This research paper evaluates relative volatility of selected sample as the volatility is a significant factor influencing the option pricing; however, it is an awfully complex factor to forecast. Hence the crucial problem lies with the accurate estimation of volatility. The ballpark volatility can be used to establish future prices of the stock or the stock option.