Author(s)

Shiyu Hao, Jiuqi Sun and Tian Xie

Corresponding Author

Shiyu Hao

ABSTRACT

Since 2008, binary option has become more accessible and attracted the attention of investors due to the diversity of trading ways. In this paper, Black-Scholes model and Monte Carlo simulations are utilized to simulate the AAPL stock in one year and price the binary option. Besides, we also analyzed the sensitivity of pricing binary options in aspects of payoff, time, strike price and volatility. According to the analysis, the results came out to be surprisingly valid, which indicates that the price of binary option will change in laws. Our limitation is that although it is theoretically correct, the binary option is more like a gambling, which is more comprehensive and riskier than it is expected in our analysis. Moreover, the way to analyze the sensitivity of volatility need to improve to be more valid. Nevertheless, these results could offer investors some suggestions to make profit in the real market and shed light on binary option pricing.

KEYWORDS

Binary option, Black-Scholes model, Monte Carlo Simulation, Sensitivity