Comparison of option pricing models of SET50 index using numerical methods to market price

  • ธนัญญา ธนาวิชิตฤกษ์ มหาวิทยาลัยหอการค้าไทย
  • สมพร ปั่นโภชา
Keywords: Black-Scholes model, Monte Carlo method, Bootstrapping method, Root Mean Square Error

Abstract

This study is to examine SET0 index options pricing using 3 numerical methods, which are Black-Scholes model, Monte Carlo method, and Bootstrapping method, and compare with the market price by using daily data of the sample options that are traded in Thailand Futures Exchange. There are 4 groups for call options and put options with expiration dates in December 2020 and March 2021. Each group contains different exercise prices. Microsoft Excel is used for data preparation and Visual Basic for Applications Code (VBA) is used for simulating SET50 index to calculate optimum option prices.

The study shows that the optimum prices from all 3 methods move in the same direction, which correspond to the hypothesis. The hypothesis stated that the optimum prices from all 3 methods move in the same direction, and they are good representatives to be used for market price comparison. The price from Bootstrapping method is lower than Monte Carlo method and Black - Scholes model clearly, except that of put options with expiration dates in December 2020(S50Z20PXXX) which stated that the price from Bootstrapping method is higher than Monte Carlo method and Black - Scholes model. Furthermore, Root Mean Square Error (RMSE) results show that, for call options, Bootstrapping method and Monte Carlo method are able to forecast the optimum price effectively. On the other hand, for put options, Bootstrapping method is the only effective method that obtain the lowest RMSE.

Published
2021-08-29

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