Gencay, Ramazan; Salih, Aslihan - In: Annals of Economics and Finance 4 (2003) 1, pp. 73-101
The Black-Scholes pricing errors are larger in the deeper out-of-the-money options relative to the near out-of-the-money options, and mispricing worsens with increased volatility. Our results indicate that the Black-Scholes model is not the proper pricing tool in high volatility situations...