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 ?
In its raw form, the Black Scholes model is only applicable to non dividend paying European options.
Figure 2 compares the delta of a put option on a mortgage measured using the Black Scholes model versus the delta of the same option measured using a model that uses an accurate assumption with respect to the underlying asset return distribution.
The bias of the Black Scholes model can be characterized as follows.
The theoretical market value of the share options granted is DKK2.9m, which has been calculated using the Black Scholes model.
The theoretical market value of the options expected to be granted on 1 April 2017 has been estimated to be at approximately DKK57m, based on the Black Scholes model.
The theoretical market value of the share options granted is DKK20.1m, (calculated using the Black Scholes model. Nets will cover its obligation to deliver shares upon exercise of vested share options by using shares held in treasury.
Then the Capital Asset Pricing Model, CAPM, and Black Scholes models introduced the measurement of risk to a portfolio.