

BlackScholes Option Pricing Model 





The BlackScholes Option Pricing Model predicts an option's price given the strike price, expiration date, riskfree rate of return, stock price, and standard deviation of the stock's return. Wall Street was quick to adopt the BlackScholes Option Pricing Model in the early 1970s although key assumptions of the BlackScholes 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 BlackScholes Option Pricing Model. Large segments of the financial sector emerged due to the success of the BlackScholes Option Pricing Model. Myron Scholes shared the 1997 Economics Nobel Prize with BlackScholes Option Pricing Model development collaborator Robert Merton for this work. Fellow BlackScholes Option Pricing Model namesake Fischer Black had passed away in 1995, but would have shared the award. Learning to derive the BlackScholes Option Pricing Model is a key part of any mathematical finance curriculum today.
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