Valuation of Agricultural Commodity in an Unstructured Nigerian Market Using Black-Scholes’ Model

This paper investigates the pricing accuracy of the Black-Scholes’ model in an unstructured over-the-counter Nigerian agricultural commodity market. Rice prices were valued using the Black-Scholes’ equation. The model’s predicted prices were compared with the market observed prices. Data for the study was sourced from food prices watch from January, 2017 - February, 2020 from National Bureau of Statistics. The result of the study shows that the prices produced by the Black-Scholes’ model provides a good match with the market observed prices. There is also a positive and significant correlation between the Black-Scholes’ model and market observed prices. Recommendation was made that Black-Scholes’ model should be used as an efficient model for pricing derivatives contracts of Nigerian local securities.