Process for Testing Models

The first step towards evaluating the option pricing models is to obtain the necessary historical stock and option data from an internet finance website. Once the data is retrieved, it can be analyzed. This "data mining" process was done using a PHP script. The PHP script would go and retrieve the source code of a given stock, strip all of the HTML tags, and then search and copy the portions of the webpage that contained the desired data. At first, it can be used as an alternate place to get stock quotes. See http://www.tjhsst.edu/ cvu/techlab/stocks.phtml

The next step was to program the option pricing models. This was fairly simple for Black-Scholes, as it is simply an explicit formula, albeit long and complex. The binomial tree model was also simple to code, as it is a classic example of a recursive tree. The source code for these two models are in the appendices.