Pricing Options on Ghanaian Stocks Using Black-Scholes Model

Abstract

We present a succinct new approach to derive the Black-Scholes partial differential equation and subsequently the Black-Scholes formula. We proceed to use the formula to price options using stocks listed on Ghana stock exchange as underlying assets. From one year historical stock prices we obtain volatilities of the listed stocks which are subsequently used to compute prices of three month European call option. The results indicate that it is possible to use the Black Scholes formula to price options on the stocks listed on exchange. However, it was realised that most call option prices tend to zero either due to very low volatilities or very low stock prices. On the other hand put options were found to give positive prices even for stocks with very low volatilities or low stock prices.