A Close Look into Black-Scholes INDEX Nifty 50 Put Option Pricing Model: Evidence from Indian National Stock Exchange

Abstract

The Black-Scholes option pricing model is one of the most revolutionary concepts in the area of financial engineering and hence, its applicability has attracted the attention of several researchers. This research paper empirically investigates the pricing accuracy of 2826 Put option contracts written over the underlying equity INDEX Nifty50 calculated under the Black-Scholes option pricing model. It has been observed that price of equity INDEX Nifty50 Put options contracts are overall undervalued by the Black-Scholes Model. Similarly, situation of overvaluation caused by the model in the case of ITM, OTM, Near Month, Next Month and Far Month contacts has been observed by the researchers in the valuation of equity INDEX Nifty50 put options.