Question

Black scholes option pricing formula explain

Answer 1

This is The formula, developed by three economists – Fischer Black, Myron Scholes and Robert Merton – is perhaps the world's most well-known options pricing model. ... The option is European and can only be exercised at expiration. No dividends are paid out during the life of the option.

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Answer 2

The inputs for the Black-Scholes equation are volatility, the price of the underlying asset, the strike price of the option, the time until expiration of the option, and the risk-free interest rate. With these variables, it is theoretically possible for options sellers to set rational prices for the options that they are selling.

The Black–Scholes or Black–Scholes–Merton model is a mathematical model for the dynamics of a financial market containing derivative investment instruments.