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The Black Scholes option pricing model is used primarily to derive the correct market price of stock options. Options are contracts that give you the right, but not the obligation, to sell the asset named in the contract. Read More »
By making the most of Black Scholes option pricing model, you can accurately determine the fair value of options. As with other investments, gaining a better understanding about the factors affecting option pricing and how to calculate the fair value of options is a critical step in taking advantage of the market. Read More »
To understand the Black Scholes Option Pricing Model, it is imperative to understand what the Black Scholes formula and what an option-pricing model is. The Black Scholes model is a model of financial markets based on a mathematical formula. The formula contains instruments of investments called "derivatives," and from this model, we can extrapolate the Black Scholes formula, a Nobel Prize winning formula. We also get the Black Scholes equation from this formula. The Black Scholes formula determines the price of "European-style" stock options and doing so eventually led to the creation of the Chicago Board Options Exchange.
Created by Myron Scholes and Fischer Black in a paper written in 1973 which is titled, "Pricing of Options and Corporate Liabilities," the Black Scholes equation determines how much stock options are worth over a time and is also known as the Black Scholes Option Pricing Model. The entire model is used for many investment opportunities as well as hedges and on Wall Street. If you want to learn more about the model, then you are in the right place because Business.com offers a ton of information and resources about the Black Scholes equation, formula and model. Click the links on the left to get started, and you might find yourself investing using this model today.