Study of Relevance of Black-Scholes Model in Indian Stock Option Market

Derivatives trading is a core part of the Indian Stock Market in the current era. Trading volumes in stock options have grown up tremendously during recent years. This has also led to high volatility in the option prices. Trading in the right option on the right price is becoming more and more important for the traders for effective and profitable trades. In this scenario, the Black Scholes Pricing Model is used for fair value pricing of option contracts. In this paper, we have tried to find out the relevance of Black Scholes Model values with the market values for stock options. For this, we have selected ten stock’s option contracts. We have found that in most of the cases, the Black Scholes Model values are not relevant to the market values; therefore the model is partially relevant. The findings show the need to explore the impact of other factors on pricing on option than Black Scholes Models.