An Analysis of Option Pricing Models Charles Vu 2002-2003
Scientific Method: Experimental Design

Problem/Purpose
For my Senior Research Laboratory Project, I will be researching the most popular option pricing models. By taking past stock and option data and testing it to see which option model yields closest to the ideal market price, I will identify the best option pricing model, if such a model exists. The market price may be the best price.

Hypothesis
By testing the models not on their theoretical merits, but by their experimental, real-life accuracy, one can test how the models compare in real-life. I predict that none of the models will be as accurate to predicting the ideal option price as the market price itself, as all the current models do not completely model the complex nature of stock options. However, the efficient market price will be able to adjust for things not measurable by a model, such as market sentiment, economic events, as well as global events.

Procedure
Initially, the equations of the various models will need to be programmed. Past stock and option data will then be collected for testing. Simple call and put strategies will be employed. The "best" model will be the one that yields a portfolio with the closest to no return. There is a possibility that the market price is the best model, and will also be tested.

Materials
The primary programming language will be C++. The script which will obtain the historical stock and option price data will be in PHP. Other than that, no materials are necessary.

Observations/Data/Results
As of 04/02/03, I have not reached the point in my project where data runs can be performed.

Analysis
As of 04/02/03, I have not reached the point in my project where a complete analysis of my hypothesis can be peformed.

Conclusion
After all the data runs are performed, I will be able to make an objective conclusion as to the best option pricing model.

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