Social and Behavioral Sciences Commons^™

Stock Index Options Pricing Models, Mark York

The Journal of Undergraduate Research

The purpose of this research is to apply stochastic modeling methods to determine the prices of stock index options. In this paper, three models are implemented and compared for accuracy based on the S&P 500 index (SPX) options data for 1996. These models include the Black-Scholes Model (BS), a stochastic volatility model (SV) which accounts for volatility in the underlying stock price, and a stochastic volatility model with jump in the underlying stock price (SVJ). This jump in the stock index prices is accounted for in the SVJ model using a compound Poisson distribution. The SV model is nested in …