Option Pricing: The Black-Scholes Model and Its Applicability in the Nigerian Capital Market
Abstract
This paper examines the theoretical underpinnings of the Black-Scholes model within the context of the options market. It evaluates its assumptions and highlights and then discusses its relevance, applicability and limitations in the Nigerian financial market. Given the absence of any options trading on the Nigerian Exchange market, the paper avers that it is desirable for the regulatory authorities in Nigeria take steps to establish the options market segment within the Nigerian Exchange Group with a view to enhancing and expanding activities in the market and provide the much-needed avenue for increasing the depth and breadth of the market. The author therefore recommends, among others, the introduction of an options market segment in the stock market and the establishment of a separate options clearing house by the NGX, coupled with increased capacity building, training and public enlightenment.
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