Black-Scholes Model

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What is the Black-Scholes Model?

Black-Scholes Model is a pricing model of financial instruments, and in particular stocks and options, derived by Fischer Black and Myron Scholes in 1973. It is based on arbitrage arguments that uses the stock price, the exercise price, the risk-free interest rate, the time to expiration, and the standard deviation (volatility) of the stock return.

The key assumptions of the model are:

• The price of the underlying instrument is a geometric Brownian motion, in particular with constant drift and volatility.

• It is possible to short sell the underlying stock.

• There are no arbitrage opportunities.

• Trading in the stock is continuous.

• There are no transaction costs or taxes.

• All securities are perfectly divisible (e.g. it is possible to buy 1/100th of a share).

• The risk-free interest rate is constant, and the same for all maturity dates.

Forum Forum about the Black-Scholes Model. Comparing 2 Mutual Funds using Standard Deviation How can standard deviation be used to compare the rate of return on two mutual funds?... 5   1 comments 🔥 Problems with Using Standard Deviation Standard deviation is the most widely used measure of investment risk. It assumes all investors agree on the degree of risk in every investment. However there are major concerns or drawbacks of usi... 3   Explanation of Black-Scholes Option Valuation Equation The main equation for the Black-Scholes Option Valuation is as follows: C = S.N(d1. - X.e-RT. N(d2. (12) where: C is the value of call option S is the current market price of shares in question X... 3   Start a new topic about the Black-Scholes Model Sign up for free

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Information Sources Various sources of information regarding the Black-Scholes Model. Here you will find powerpoints, videos, news, etc. to use in your own lectures and workshops. Black-Scholes Option Valuation Black-Scholes Model, Put Valuation, Call Valuation, Option Valuation This presentation aims to briefly and clearly explain the Black-Scholes model and the formula’s that are used within thi...

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