Abstract
Option pricing, a core part of options trading, has been fruitfully researched over the years. This article reviews the history of the emergence and advancement of option pricing in terms of a thorough classification of the widely used option pricing models and their empirical studies that follow. The three option pricing models are summarized, including the Black-Scholes pricing model, the tree diagram model, and the Monte Carlo simulation techniques, which have all represented significant progress in the field of option pricing theory. Moreover, the differences between various pricing models are analyzed and compared to show their applications and to provide an outlook on future work in this theory. It is vital to carry out some research on option pricing in order to better suit the preferences of investors. In order to meet the continuous development of financial markets, valuation of financial derivative securities is the key to effective investment in risky assets.
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