Valuation of option contracts under risk and uncertainty

Abstract

One of the main aspects of trading in derivative securities is their proper evaluation. The manner of many financial parameters in the future can he described only using stochastical probability distributions. The main reason of for such proposition is stochastic nature of the biggest part of financial parameters. The paper deals with the problem of determination of option price as stochastical variable, described by using adequate probability distributions. Using Black-Scholes options pricing model and simulation techniques imitative model was constructed, describing the process of option evaluation, possible results and manner under conditions of uncertainty. Using the results of simulation the influence of growing riskiness of interest rate over riskiness of option contracts and its mean value was determined.