Analyze the Value of European Options and Power Options Based on Black-Scholes Model

Abstract

Options are crucial to global financial markets. However, there is rarely existing literature combining a specific option and a certain company, with simultaneous analysis and conclusions of the option. Based on the ordinary least square (OLS) regression and Black-Scholes (BS) model, we design two simulated options for Morgan Stanley, which are European options and power options. Then the option's value is identified in this article. Besides, through the sensitivity analysis of the two options and their related parameters, we get some results and conclusions about the characteristics of the two options. In general, the value of options is affected by independent variables and parameters. Compared with a European option, a power option has a higher risk and higher future expected return. This paper provides better advice for investors, on the premise of fully considering various possible situations, compare the advantages and disadvantages of the two options, and make their own investment choices.