Molintas, Dominique Trual
(2021):
*Black Scholes Model.*

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## Abstract

Black-Scholes is a pricing model applied as the reference in the derivation of fair price—or the theoretical value for a call or a put option. A call is defined as the decision to buy actual stock at a set price, defined as the strike price; and by a scheduled expiration date. A put option is defined as the opportunity contract providing the owner the right but not the obligation, to sell an exact amount of underlying security at a stated price within a specific time frame. The call or put option in the Black Scholes model is based on six variables: strike price and underlying stock price, time and type of option, volatility and risk-free rate. The application of the model assumes that these stock or securities recognise its corresponding custom derivatives held to expiration. It is sufficient to state that the Black-Scholes treats a call option as an informal agreement defined as a forward contract with expectation to deliver stock at a contractual price, otherwise indicative in the strike price.

Typically the Black-Scholes model is utilised to price European options (y p) that represents investment options in a selection of financial assets earning risk-free interest rates. In strictness, the model presents the option price as a function of stock price volatility: High volatility is tantamount a high premium price on the option.

Item Type: | MPRA Paper |
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Original Title: | Black Scholes Model |

English Title: | Black Scholes Model |

Language: | English |

Keywords: | Black-Scholes model, strike price, volatility , risk-free rate, stock price volatility |

Subjects: | E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E47 - Forecasting and Simulation: Models and Applications G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates |

Item ID: | 110124 |

Depositing User: | Ms Dominique Trual Molintas |

Date Deposited: | 13 Oct 2021 04:47 |

Last Modified: | 13 Oct 2021 04:47 |

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URI: | https://mpra.ub.uni-muenchen.de/id/eprint/110124 |