Black Scholes

The Black Scholes model was developed by Fischer Black and Myron Scholes in 1973.

It is based on a number of simplifying assumptions such as:

  • underlying stock prices following a geometric Brownian motion with constant drift and volatility,
  • no-arbitrage,
  • no dividends,
  • no transaction costs,
  • borrowing and lending at a constant risk free interest rate,
  • unlimited as well as fractional purchases and sales.

As a consequence of this model, they derived the Black Scholes equation for the price of an option over time. The formula for determining the price of a European call or put option is a solution of the equation after an application of certain terminal and boundary conditions. The value of the options based on the formula are functions of time to maturity, price of underlying asset, exercise or strike price, risk free interest rate and constant volatility.

Black Scholes - Monte Carlo simulated price

This reference guide lists the related free courses and posts available on the site. Whether its valuing options or constructing your first Monte Carlo simulator or reviewing material for your derivatives pricing exam.

Free Courses on Black Scholes

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