Research on option pricing of Tesla based on Black-Scholes-Merton, Binomial Tree, and Cox-Ingersoll-Ross Models

Abstract

This study examines the predictive accuracy of three option pricing models—Black-Scholes-Merton (BSM), Binomial Tree, and Cox-Ingersoll-Ross (CIR)—using Tesla Inc's real data. The research surveys the evolution of option pricing models and their significance in risk management and speculation. By applying these models to Tesla's volatile stock, the paper compares their predictions against actual prices. Results indicate that while outcome yielded from all three models resembles the real price to a reasonable extent, the Binomial Tree model's superior performance offers closer mean values and correlations with real prices. This research advances the practical understanding of option pricing, contributing valuable insights for traders and investors facing dynamic market conditions.