Option Pricing Model Estimates: Some Empirical Results

Abstract

In a seminal paper, Black and Scholes [3] presented a closed-form valuation model for European options. Merton [11] later demonstrated that the BlackScholes model for valuing European call options is equally applicable to American call options written on stocks that do not pay dividends or on call options that are protected against dividend payouts. Closed-form solutions to options on stocks that pay dividends at known, discrete time intervals have recently been established by Roll [14] and Geske [9]. Despite the enormous interest that the BlackScholes model has generated in both the academic and