Date of Award

May 2017

Degree Type


Degree Name

Master of Science



First Advisor

Richard H. Stockbridge

Committee Members

Chao Zhu, Vytaras Brazauskas


Black-Scholes Formula, Black-Scholes Model, Control Problem, Hedging Portfolio


In this thesis the influence of volatility in the Black-Scholes model is analyzed. The deduced Black-Scholes formula estimates the price of European options. Contrary to the other parameters of the formula, the future volatility of the underlying asset cannot be observed in the market. The parameter needs to be assumed in order to calculate the option price. An inaccurate assumption may lead to an erroneous volatility. It is studied how a falsely assumed volatility impacts on the option price. Empirical simulations will be carried out to get an impression of possible errors in the computations. Afterwards, those results will be discussed and linked with an evaluation of potential risks.