Black's Model


DEFINITION of 'Black's Model'

A variation of the popular Black-Scholes options pricing model that allows for the valuation of options on futures contracts. Black's Model is used in the application of capped variable rate loans, and is also applied to price derivatives, such as bond options and swaptions.

BREAKING DOWN 'Black's Model'

In 1976, Fisher Black, one of the developers of the Black-Scholes model (which was introduced in 1973), demonstrated how the Black-Scholes model could be modified in order to value European call or put options on futures contracts. For this reason, the Black model is also referred to as the Black-76 model.

  1. Myron S. Scholes

    An American economist and winner of the 1997 Nobel Prize in Economics ...
  2. Financial Modeling

    The process by which a firm constructs a financial representation ...
  3. Black Scholes Model

    A model of price variation over time of financial instruments ...
  4. Option Pricing Theory

    Any model- or theory-based approach for calculating the fair ...
  5. Merton Model

    A model, named after the financial scholar Robert C. Merton, ...
  6. Futures Contract

    A contractual agreement, generally made on the trading floor ...
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