Black Scholes Model


Also found in: Acronyms.

Black Scholes Model

A model for mathematically pricing options. The model takes into account the strike price, the time until the expiration date, the price of the underlying asset, and the standard deviation of the underlying asset's return. The model assumes that the option can only be exercised on the expiration date, that it will provide a risk-free return, and that the volatility of the underlying asset will remain constant throughout the life of the contract. The calculation is slightly different for calls and puts. See also: Option Adjusted Spread, Option Pricing Curve.
References in periodicals archive ?
The bias of the Black Scholes model can be characterized as follows.
Over the years a number of valuation practitioners and auditors have acknowledged weakness in the Black Scholes model as applied, finding it may not be appropriate for all companies, in all cases.
The net effect of the Black Scholes model, in terms of disclosing the aforementioned economic circumstances is a footnote disclosing that after accounting for the options net income would have been $242 million lower.
Then the Capital Asset Pricing Model, CAPM, and Black Scholes models introduced the measurement of risk to a portfolio.