Author(s)

S. Demir & H. Tutek

Abstract

The objective of this study is to test the applicability of the empirical Martingale simulation approach in pricing of options in the Istanbul Stock Exchange (ISE) market with the aim of providing a workable pricing model that offers realistic solutions for both practitioners and planners in Turkey. Two sets of five different European call options are created by changing the maturity, interest rate, strike price and the volatility. One set of options is assumed to be written on the ISE Composite Index and the other set assumed to be written on the most volatile stock included in the Istanbul Stock Exchange Composite Index, the Yapi Kredi Bank (YKB) stock. The prices for the five different options on the ISE Composite Index and on YKB stock are found by applying the Binomi

Keywords