meaning of Black-Scholes Option Pricing Model

Black-Scholes Option Pricing Model meaning in Finance Dictionary

A pricing design created by Fischer Black and Myron Scholes in 1973. Its key factor may be the presumption that alternative rates have actually maximum and minimal values. The utmost price a call option can ever before attain is the value of the share itself, because no body would previously pay significantly more than the share cost to acquire the right buying the share. The minimal could be the difference between the share price while the option's exercise cost. The design leaves this presumption into a formula and changes it to take into account: interest levels; the full time left prior to the choice expires; in addition to volatility associated with the underlying share price. The formula was developed for call choices but its maxims apply similarly to place choices.