A study of applicability of the black and scholes option pricing model to stock call options traded in the SES

Abstract

In February 1977, the Singapore Stock Exchange of Singapore introduced stock option trading for the first time. A total of ten option counters with a variety of strike prices and maturity dates were made available for trading. The options trading was well received in the first month, however, the momentum could not be sustained and the turnover in call options trading dwindled and was discontinued in 1980. Ariff, Chan and Johnson conducted a detailed study of this failed market and put forward a few reasons to explain the failure of option trading in Singapore. It was only until 8 March 1993 that the Stock Exchange of Singapore re-introduced stock option trading with the listing of call and put options on SIA Foreign and Keppel Corporation. By June 1993, stock option trading in Singapore was extended to include call and put options of NatSteel and City Development.