The Impact of the Binomial Option Pricing Model on Designing Hedge Portfolio. Empirical Study on Banking Sector in Amman Stock Exchange

The current study investigates the way of using option pricing according to the Binomial Option Pricing Model (BOPM), and how to design a hedge portfolio for the Jordanian banks in Amman Stock Exchange (ASE) in the years 2015-2016. To Achieve aims of the study, the researcher used Microsoft Office Excel 2007 in order to set pricing, fair value of shares and design hedge portfolio. The study reveals that the BOPM is one of the most significant models for option pricing as appeared in the results of the banking sector in the ASE. The findings also affirm that designing hedge portfolios reduces risks that might occur to non-hedging portfolios; hedge portfolio fulfilled positive results. It expected that shareholders and financial managers working in the Jordanian banking sector gain benefits from this study by providing a way to design hedge portfolio, how to price options using the BOMP and, accordingly, how to reduce the financial risks of the portfolios. The study is considered important as it was implemented for the first time on the banking sector in the ASE which includes varied investment instruments that need awareness and knowledge by the financial managers in the Jordanian banks.