Option Pricing Simplified

Abstract

Here we present three option-pricing models, one based on the underlying asset and two based on indices that are averages of the prices of options having same particulars but different strike prices. These models estimate an option price directly from the market movements in the prices of the underlying asset or the options having different strike prices. Besides their ease of computation, the average pricing errors of these new models are comparable to or less than those of the extant models like the Black-Scholes model, the Heston-Nandi GARCH(1,1) model and the Conditional Black-Scholes model, making the former preferable.