Analysis of the application of the Black- Scholes model on the FTSE/ASE-20 stock options of the Athens Derivatives Exchange.

Different models of pricing stock options are tested systematically. The most useful is Black- Scholes model. Using this model to price the behavior of stock options, it is found that pricing errors and implied volatility estimates differ across exercise price and time to maturity. FTSE/ASE-20 were first introduced in August 2000 and nowadays they represent the 91,3% of the Greek options’ market. This paper examines the pricing of FTSE/ASE-20 stock options using the Black- Scholes model. It is found that observed prices and predicted prices by the model differ systematically because the model assumes the market to be frictionless. The model overprices both call and put options. Furthermore, implied volatility reduces as contracts become out-of-the-money.