Black-Scholes Option Pricing Model

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Definition: Black-Scholes Option Pricing Model



Full Definition of Black-Scholes Option Pricing Model


The Black-Scholes Option Pricing Model predicts an option’s price given the strike price, expiration date, risk-free rate of return, stock price, and standard deviation of the stock’s return. Wall Street was quick to adopt the Black-Scholes Option Pricing Model in the early 1970s although key assumptions of the Black-Scholes Option Pricing Model are obviously violated in the real world. In many contemporary Wall Street applications, more refined pricing models that adjust for these violations have replaced the seminal Black-Scholes Option Pricing Model. Large segments of the financial sector emerged due to the success of the Black-Scholes Option Pricing Model. Myron Scholes shared the 1997 Economics Nobel Prize with Black-Scholes Option Pricing Model development collaborator Robert Merton for this work. Fellow Black-Scholes Option Pricing Model namesake Fischer Black had passed away in 1995 but would have shared the award. Learning to derive the Black-Scholes Option Pricing Model is a key part of any mathematical finance curriculum today.


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Definition Sources


Definitions for Black-Scholes Option Pricing Model are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 4th February, 2020 | 0 Views.