DEFINITION of 'Black Scholes Model'
A model of price variation over time of financial instruments such as stocks that can, among other things, be used to determine the price of a European call option. The model assumes that the price of heavily traded assets follow a geometric Brownian motion with constant drift and volatility. When applied to a stock option, the model incorporates the constant price variation of the stock, the time value of money, the option's strike price and the time to the option's expiry.
Also known as the BlackScholesMerton Model.
INVESTOPEDIA EXPLAINS 'Black Scholes Model'
The Black Scholes Model is one of the most important concepts in modern financial theory. It was developed in 1973 by Fisher Black, Robert Merton and Myron Scholes and is still widely used today, and regarded as one of the best ways of determining fair prices of options.
There are a number of variants of the original BlackScholes model.
VIDEO

LatticeBased Model
An option pricing model that involves the construction of a binomial ... 
Stochastic Volatility  SV
A statistical method in mathematical finance in which volatility ... 
Alfred Nobel
The man after whom the Nobel Prize is named. Nobel, born in 1833 ... 
Myron S. Scholes
An American economist and winner of the 1997 Nobel Prize in Economics ... 
Black's Model
A variation of the popular BlackScholes options pricing model ... 
HeathJarrowMorton Model  HJM ...
A model that applies forward rates to an existing term structure ...

What is a "non linear" exposure in Value at Risk (VaR)?
The value at risk (VaR) is a statistical risk management technique that determines the amount of financial risk associated ... Read Full Answer >> 
What technical skills must one possess to trade options?
An option is a financial derivative that gives you (as the buyer or holder) the right to buy or sell an underlying security ... Read Full Answer >> 
What is an option's implied volatility and how is it calculated?
Implied volatility is a parameter part of an option pricing model, such as the BlackScholes model, that gives the market ... Read Full Answer >> 
What kinds of derivatives are types of forward commitments?
A derivative is a type of security in which the price of the security is dependent on underlying assets. A derivative could ... Read Full Answer >> 
What does it mean to be long or short a derivative?
A derivative is a type of security in which the price of the security is dependent on one or more underlying assets. A derivative ... Read Full Answer >> 
What is an overthecounter derivative?
A derivative is a type of security in which the price of the security depends on the price of the underlying asset. Depending ... Read Full Answer >>

Investing
Understanding the BlackScholes Model
The BlackScholes model is a mathematical model of a financial market. From it, the BlackScholes formula was derived. The introduction of the formula in 1973 by three economists led to rapid ... 
Options & Futures
Breaking Down The Binomial Model To Value An Option
Find out how to carve your way into this valuation model niche. 
Options & Futures
How Risk Free Is The RiskFree Rate Of Return?
This rate is rarely questioned  unless the economy falls into disarray. 
Investing Basics
Pin Down Stock Price With Real Options
How can you assign a value to what a company may do with its business in the future? We explain how it works. 
Options & Futures
Options Basics Tutorial
Discover the world of options, from primary concepts to how options work and why you might use them. 
Options & Futures
Understanding Option Pricing
Take advantage of stock movements by getting to know these derivatives. 
Bonds & Fixed Income
Accounting and Valuing Employee Stock Options
Learn the different accounting and valuation treatments of ESOs, and discover the best ways to incorporate these techniques into your analysis of stock. 
Investing Basics
Understanding OpenEnd Funds
An openend fund is a type of mutual fund that does not limit the amount of shares it issues, but issues as many shares as investors are willing to buy. 
Investing Basics
What is a Nominal Value?
The nominal value of a security, such as a stock or bond, remains fixed for the duration of its life. 
Fundamental Analysis
Calculating Future Value
Future value is the value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today.