Modified Black-Scholes Option Pricing Models By Premium Principles

To develop the option pricing,and to improve the performance of the Black-Scholes formula in an incomplete market.This paper modifies Black-Scholes formula for European call option and put option by the standard deviation principle and the variance principle of premium principles.With a well estimated GARCH model,we get the future stock prices by using stochastic simulation method.An option pricing is performed under the modified Black-Scholes formulas and the classic Black-Scholes formula.And we compare the three theoretical prices with the actual market prices.From the results of the simulation,we find that the modified Black-Scholes formulas are improved.