An examination of kurtosis of lognormality in the Black-Scholes option pricing formula in the South African warrants market
Master Thesis
2005
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University of Cape Town
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Abstract
The assumption of constant asset price volatility of classical Black-Scholes model hasbeen challenged continuously. The symmetrical distribution emphasises a lognormalized asset. This paper aims to investigate the volatility distribution (i.e. kurtosis) of the South African warrants market at Johannesburg Stock Exchange based on a comparison of option implied distributions of the terminal price of the TOP European Call option with lognormal distribution. The result indicates that the constant volatility of Black-Scholes model does not show in the selected warrant market.
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Includes bibliographical references.
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Chen, H. 2005. An examination of kurtosis of lognormality in the Black-Scholes option pricing formula in the South African warrants market. University of Cape Town.