Discuss the Black-Scholes formula on derivative pricing.

Question

29 Aug 2022

Answer :

Word Count : 641

Black-Scholes-Merton formula is an estimate of the prices of European call and put options, with the core difference between American and European options being that European options can only be exercised on their one exercise date versus American call options that can be exercised any time up to that expiration date. It's also used only to determine prices of non-dividend paying assets.

The Black–Scholes-Merton formula of value for a European call option is:

(note: the formula for a European put option is similar)

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The Black-Scholes model, aka the Black-Scholes-Merton (BSM) model, is a differential equation widely used to price options contracts. The Black-Scholes model requires five input variables: the strike price of an option, the current stock price, the time ______ _________ ___ __________ __________ _________ _______ __________ _____ __________.
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