Estimation of Stock Prices using Black-Scholes Partial Differential Equation for Put Option

Wokoma D.S.A.; Amadi I.U.; Azor P.A.

Estimation of Stock Prices using Black-Scholes Partial Differential Equation for Put Option | AB Journals

Estimation of Stock Prices using Black-Scholes Partial Differential Equation for Put Option

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African Journal of Mathematics and Statistics Studies

Vol. 3Issue 22020pp. 80–89Published 30 June 2020

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Abstract:

This paper is centred on the implementation of Black-Scholes (BS) partial differential equation (PDE) via Crank-Nicolson finite difference method for the valuation of European put option. First, we explained how Black-Scholes (BS) partial differential equation and Crank-Nicolson (CN) numerical solutions can be used to estimate option prices and then we derived the method and results obtained through our simulation studies. From the results, it was discovered that Black-Scholes analytical and CN numerical values were relatively close but increase in the variation of sigma introduced much errors in the pricing analysis; with this increase in sigma profit making within the trading days is not possible.

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