ANALYSIS OF OPTION PRICING MECHANISMS IN FINANCIAL MARKETS USING THE BLACK-SCHOLES MODEL AND SNEDECOR'S F-DISTRIBUTION

The success of any investment largely depends on the valuation of options, which plays a pivotal role in shaping the financial strategies of investors. The Black-Scholes (B-S) equation remains a foundational mathematical tool for estimating stock option prices. This study examines the Black-Scholes model for European call options alongside Snedecor’s F-distribution to evaluate option pricing on the share prices of Fidelity and Access Banks. Closed-form solutions for call option prices were obtained for two distinct expiration dates. The variation in call option prices between these dates provides valuable insights into the market's expectations regarding future movements of the underlying securities. Additionally, hypothesis testing was conducted and accepted for both banks, revealing statistically significant differences in the variances of call option prices across expiration dates. The analysis yielded variances of 0.8954 for Fidelity Bank and 0.9746 for Access Bank, indicating that higher variance implies greater potential for price fluctuation over time. Hence, Fidelity Bank, with the lower variance, offers better precision for informed investment decisions. Furthermore, a theoretical proposition was formulated and validated to analyze prospective price changes and support strategic decision-making. The study also considered the means and standard deviations of projected future prices, offering practical implications for understanding investment returns within capital markets.