Panta rhei

Bachelor thesis by Panta Rhei; Thesis Supervisor P. Verheijen Revisiting the Black-Scholes Model. Dr. R. Jongen 1 Panta Rhei; Revisiting the Black-Scholes Model. Abstract The Black-Scholes model was published in 1973 and markets have continued to evolve ever since. This thesis investigates the performance of the model in today’s market and it is a continuation of existing research on options. The model is tested for SPX Standardized Options for the period 2004-2012. Besides testing the performance of the model, the effects of the credit crisis are also examined. This thesis can be divided in two separate parts, namely a literature study and an empirical research. The empirical research consists of four simple tests; an implied volatility test, a volatility smile test, a Put-Call Parity test and a test for normality. The results of the research indicate that the average predicted volatility (the implied volatility) systematically deviates from the realised volatility, that a volatility smile is visible in the data, that Put-Call Parity principle does not uphold and that the daily returns of the SPX Index are not distributed normally. The research also indicates there is a significant effect during and after the credit crisis on options and on the performance of the model. Keywords; SPX-Index, Options, Credit Cris are also examined. This thesis can be divided in two separate parts, namely a literature study and an empirical research. The empirical research consists of four simple tests; an implied volatility test, a volatility smile test, a Put-Call Parity test and a test for normality. The results of the research indicate that the average predicted volatility (the implied volatility) systematically deviates from the realised volatility, that a volatility smile is visible in the data, that Put-Call Parity principle does not uphold and that the daily returns of the SPX Index are not distributed normally. The research also indicates there is a significant effect during and after the credit crisis on options and on the performance of the model.