Black Scholes Model

(redirected from Black-Scholes Pricing Model)

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 Black-Scholes pricing model is still widely used to minimize risk in the financial markets," said Scholes, who first articulated the model's formula along with economist Fischer Black.
Amid uncertainty in the financial markets, we are pleased the Black-Scholes pricing model still plays an important role in determining pricing and managing risk," said Merton, who worked with Scholes and Black to further mathematically prove the model.
Since the model will be derived from the Black-Scholes pricing model for dividend-paying stock options, then the assumptions used in this study will be very similar with the assumptions made by Black and Scholes (assumptions 1 to 7):
Constant Volatility--one of the major drawbacks of the Black-Scholes pricing model is that it assumes volatility to be constant since the volatility is almost always never constant, especially for actively traded stocks.
In the Black-Scholes pricing model, the volatility is difficult to be estimated.
Most experts believe the Black-Scholes pricing model does not provide an accurate, reliable or consistent measurement of the fair value of stock options," says Chambers.
The fair value method and the Black-Scholes pricing model would wreak havoc on Cisco's income statement.
5 million in shares of Crdentia's common stock, subject to adjustment based on the iVOW bank and financing debt assumed by Crdentia, the value of any uncollected accounts receivable at closing and the value of any iVOW warrants assumed by Crdentia determined using the Black-Scholes pricing model.
These estimated fair values are derived from the Black-Scholes pricing model, in accordance with GAAP, but can bear little or no direct relationship to the intrinsic value of these warrants.
Related to the Series F issuance, there will be an amount yet to be determined allocated to the warrants issued to the purchaser of the Series F stock based on their relative fair value as computed by using the Black-Scholes pricing model.
Our nation has a thriving options marketplace that has been utilizing the Black-Scholes pricing model (the model being shunned) with great reliability for many years.
As required by current accounting practices, the company revalued those securities using a Black-Scholes pricing model.