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The Benefits and Potential Risks of Using Option Pricing for Investment in China’s OTC Derivatives Market under the Black-Scholes Model
- 1 Macau University of Science And Technology
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Abstract
In this paper, based on the qualitative research and analysis of China’s financial market, both the benefits and potential risks of using option pricing for investment in China’s OTC derivatives market under the Black-Scholes model are obtained. In China, OTC derivatives mainly refer to the one-to-one contract trading between institutions, non-on-exchange financial derivatives, naturally, its environment is called ““OTC derivatives market””; Black-Scholes model is a mathematical model for option pricing. Based on the assumption that stock price obeys geometric Brownian motion, it measures the relationship between option price and underlying asset price, term, interest rate, volatility and exercise price. Based on the above variables and their overall two aspects, the gains and losses of China’s OTC derivatives market under the Black-Scholes pricing model are obtained. Some predictions and expectations are also expressed for the future of this field.
Keywords
China, financial investment, OTC derivatives market, option pricing, stock price
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Cite this article
Jiaxin,C. (2023). The Benefits and Potential Risks of Using Option Pricing for Investment in China’s OTC Derivatives Market under the Black-Scholes Model. Advances in Economics, Management and Political Sciences,55,159-164.
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