Analysis of Options Pricing using Mathematical Models

The modern financial system that governs the world economy comprises of a variety of financial and market systems.It is influenced by a multitude of internal and external, tangible as well as intangible factors. Many renownedmathematicians have derived the mathematical models used to determine the values and prices of options, futures,forward contracts and such in the software implemented in these exchanges.Among these mathematical models, the Black-Scholes model which is widely used to determine option prices in thederivatives market was a distinguished work in the field and the mathematicians behind it were awarded the NobelPrize for Economics in 1997.However, there is scope for further research in the sector of the financial market and therein lies scope for furtherinvestigation into the mathematics behind the pricing of various financial instruments used by traders in the optionsmarket.In this paper the Markovian Trinomial Tree model has been used to price European options. The behavior of theMarkovian Trinomial Tree model with respect to the traditional Black-Scholes model has also been discussed.