An empirical investigation of the Black-Scholes model: evidence from the Australian Stock Exchange

Scott McKenzie, Dionigi Gerace, Zaffar Subedar
2007 Australasian Accounting, Business and Finance Journal  
This paper evaluates the probability of an exchange traded European call option being exercised on the ASX200 Options Index. Using single-parameter estimates of factors within the Black-Scholes model, this paper utilises qualitative regression and a maximum likelihood approach. Results indicate that the Black-Scholes model is statistically significant at the 1% level. The results also provide evidence that the use of implied volatility and a jump-diffusion approach, which increases the tail
more » ... reases the tail properties of the underlying lognormal distribution, improves the statistical significance of the Black-Scholes model. ABSTRACT This paper evaluates the probability of an exchange traded European call option being exercised on the ASX200 Options Index. Using single-parameter estimates of factors within the Black-Scholes model, this paper utilises qualitative regression and a maximum likelihood approach. Results indicate that the Black-Scholes model is statistically significant at the 1% level. The results also provide evidence that the use of implied volatility and a jump-diffusion approach, which increases the tail properties of the underlying lognormal distribution, improves the statistical significance of the Black-Scholes model.
doi:10.14453/aabfj.v1i4.5 fatcat:6ox5durntbgfxlefu5jkx7opri