This paper evaluates the probability of an exchange traded European call option being exercised on the ASX200 Options Index. Using single-parameter estimates of factors within the Black-Scholes model, this paper utilises qualitative regression and a maximum likelihood approach. Results indicate that the Black-Scholes model is statistically significant at the 1% level. The results also provide evidence that the use of implied volatility and a jump-diffusion approach, which increases the tail properties of the underlying lognormal distribution, improves the statistical significance of the Black-Scholes model.
Recommended CitationMcKenzie, S.; Gerace, D.; and Subedar, Z., An empirical investigation of the Black-Scholes model: evidence from the Australian Stock Exchange, Australasian Accounting, Business and Finance Journal, 1(4), 2007.