DEFINITION of 'Black's Model'
A variation of the popular BlackScholes 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.
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BREAKING DOWN 'Black's Model'
In 1976, Fisher Black, one of the developers of the BlackScholes model (which was introduced in 1973), demonstrated how the BlackScholes 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 Black76 model.
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