Pricing of Stock Options in KenY0: ease study of a hypothetical kenya Airways Stock option at the NSE

Abstract.
In this project we undertake to calculate the price of a call and put stock options using the
Kenya airways stock as the underlying asset. We use the famous Black-Scholes option pricing
model which has stood the test of time.
In order to determine the option prices, we compute the volatility of the Kenya airways Stock
for the year 2003. Here we make the following submissions:
Maurice Kendall (1953) found out that there existed no predictable patterns in stock prices.
Prices seemed to go up and down randomly. This proposition was a subject of debate for many
years. After further reflection, it became apparent that random price movements indicated a
well-functioning or efficient market. Thus competition among analysts leads naturally to
market efficiency. This in essence meant that stock prices should follow a random walk. That
is prices should be random and unpredictable.
Indeed if stock prices were predictable, that would be damning evidence of stock market
inefficiency, because the ability to predict prices would indicate that all available information
was not already impounded in the stock prices. Therefore, the notion that stocks already reflect
all available information is referred to as the efficient market hypothesis.
We create an imaginary/ hypothetical option market at in NSE in Kenya.
On the 31stDecember 2003 there exists an Option exchange/market in Kenya.
Using the then Kenya airways (KQ) stock price kshs. 8.50 As our So, we calculate the price of
the option taking 31stmarch, 2004 as the expiration date. Assuming the 91 days treasury bills
as the risk-free interest rate, we input this variable into derivagem software and Compute the
call and put Kenya airways stock Option.
Actual/Real Stock Price Movements.
Having observed the stock prices for the month of March 2004, we wish to:
~ Find out the payoffs that an investor would have attained ifhe traded in a KQ stock
option as at 31sLMarch Z004.
~ If the investor would have hedged his position in the Stock market by Trading in
Options.

Message From the Director

Workshops and Seminars

Community Outreach

Contact Us

School of Mathematics, CBPS College.

P. O. Box 30197 - 00100
Tel: 254-02-4445751.

Mobile no :0780-834766.
Email: maths@uonbi.ac.ke.

Facebook

twitter:@uon_maths

 

UoN Website | UoN Repository | ICTC Website


Copyright © 2019. ICT WebTeam, University of Nairobi