1. Investigating the Black Scholes European Option Valuation Model using Real-Life Applications
Nihaar Sinha

2. Abstract
This project investigates creating an application that downloads
stock information from the Internet and applies to it the famous Black
Scholes algorithm, outputting the result. The Black Scholes algorithm
is used in modeling price variaton over time of securities that are
heavily traded. This application prompts the user for one of several
available heavily traded stocks, pulls that stock's information from the
Internet, asks for parameters such as strike price and length of option, and applies the Black Scholes algorithm accordingly. The goal of
this project is to create an easy to use application that gives the user an insight into models such as Black Scholes can be very hazardous in trying to predict market behavior, as seen in the subprime meltdown that triggered today's current global recession.

3. What is Black-Scholes?
Heavily traded assets follow geometric Brownian motion
Constant drift and velocity of these assets
Black Scholes outputs option value
Instrumental in the development of the mark- to-model method of valuation

4. Brownian Motion

5. Similar Research There have been many modifications to Black- Scholes
Preetam D’Souza investigated Geometric Brownian Motion last year
This project is more focused on showing the the results of applying Black Scholes on real-life securities, and investigating the causes of the reuslts.

6. Reading in Data Source code is imported from the Internet
Data is parsed for keywords
Last Trade: “</small><big><b><span id="yfs_l10_ibm">
P/E :“</span>:</th><td class="yfnc_tabledata1">

7. Reading in Data (cont.) Parsing data means source must be permanent
Source utilized is Yahoo! Finance
Snapshot of what the Yahoo! Finance interface looks like

8. Multiple Stocks User will be able to pick from selection the stock
User is only prompted for stock symbol
Import URL is thusly customized

9. Class Structure
The Main method prompts for the stock symbol and imports the data
Main method also calls for the Black-Scholes implementation
The Black-Scholes class calculates the price
Black-Scholes class also returns the result
Result is outputted in the Main method

10. Problems Run Into
How exactly to parse through all the data and find the relevant information
How to organize the program to make it less cluttered
How to parse for historical prices
How to dissect complicated math functions in Java

11. Solutions
After inspecting the source, relevant data is always followed by a specific tag
User prompted for information through JDialog boxes
Black-Scholes algorithm to be coded fully in separate parts

12. How has my hypothesis changed?
Focus has shifted from modifying Black-Scholes to applying it in practical use
Concentration on educational purposes and helping explain why certain financial crises occured
Testing has shown that the best way to import data is through importing the source code and not trying to download files

13. Progress since 1st Quarter
Program now lets user customize parameters
Gives the user stock information before asking for Strike Price
Tells user what effect the Black Scholes output has on the marketplace