Stochastic Models for Stock Option Pricing: Theoryand Applications

Abstract

This paper analyzes option pricing using stochastic models, with a focus
on European, American, and Asian options. Stock prices are modeled using
Geometric Brownian Motion (GBM), which forms the basis for the Black–
Scholes model and the Binomial Option Pricing Model. Python is used to
identify stocks consistent with the GBM assumptions, and these stocks serve
as case studies to illustrate the practical implementation of the models.