I am wondering what methods you are using to generate theoretical fair prices for XJO index options? I realise it's easy enough to go to the ASX web-site or my broker to get current quotes, but I'm interested in writing some software which needs to be able to calculate likely values at future points in time prior to the expiry date.
As the XJO options are all European-style exercise, at first I thought it would be a simple matter of using a typical Black-Scholes pricing model. But my early attempts with this always showed the Call Prices as overvalued and the Put Prices as undervalued. Then I concluded that perhaps I needed to take into account some form of dividend amount into the calculation, because although the XJO doesn't pay dividends, its value is affected as each of the 200 shares it's comprised of go ex-dividend. I've had limited success by incorporatating this, but not enough to make me happy.
Does anyone currently have a Pricing Model or some other method of calculating fair prices of XJO options? I'd very much appreciate any information you can provide. Thanks in advance for your help...