Black Scholes Model


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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.
Conservation Laws in the Black Scholes Model, The XVth International Symposium on Mathematical Methods Applied to the Sciences, The University of Costa Rica, 21-24 February, Costa Rica.
The Black Scholes model was designed in the 1970s to evaluate options on stocks.
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.
In particular, a modification needed to be made to the Black Scholes model related to the pricing of warrants issued to Bison Capital Equity Partners to purchase shares of the Company's common stock, the amortization of costs associated with such financing, and the issuance of appropriate number of warrants.
Then the Capital Asset Pricing Model, CAPM, and Black Scholes models introduced the measurement of risk to a portfolio.