Effect of Return and Volatility Calculation on Option Pricing: An Analysis Using BANKNIFTY

Abstract

Predictability in the asset returns and lience the volatility t)as remained a topic of great concern among the institutional and private investors. The underlying asset in our case is the Banic NIFTY futures. I have tried to predict the volatility using different methods using time series data which are based on historical approach. Then I have applied Black-Scholes Option Pricing Model formulae to calculate the option price of Bank Nifty option and then compared the prices with the actual market trading data of the Bank Nifty option. Our analysis shows that approximation value of option prices derived by different methods are much close to the data of option price mentioned in actual options values at NSE.