Black's Model

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  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-Litterman Model

    An asset allocation model that was developed by Fischer Black ...
  4. Black Scholes Model

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

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

    A model, named after the financial scholar Robert C. Merton, ...
RELATED FAQS
  1. Why choosing the right investment adviser is crucial for your portfolio's health

    Just as finding a good mechanic will help keep your car running smoothly, finding a good broker or financial advisor can ... Read Full Answer >>
  2. How can an investor profit from a decline in the aerospace sector?

    Several forms of speculation enable investors to profit from a decline in the aerospace sector. Short selling aerospace stock ... Read Full Answer >>
  3. When is a put option considered to be "in the money"?

    An option contract is a financial derivative that represents a holder who buys a contract sold by a writer. The moneyness ... Read Full Answer >>
  4. Are all fixed costs considered sunk costs?

    In accounting, finance and economics, all sunk costs are fixed costs. However, not all fixed costs are considered to be sunk. ... Read Full Answer >>
  5. What is the variance/covariance matrix or parametric method in Value at Risk (VaR)?

    The parametric method, also known as the variance-covariance method, is a risk management technique for calculating the value ... Read Full Answer >>
  6. What is backtesting in Value at Risk (VaR)?

    The value at risk is a statistical risk management technique that monitors and quantifies the risk level associated with ... Read Full Answer >>
Related Articles
  1. Markets

    Digging Into The Dividend Discount Model

    The DDM is one of the most foundational of financial theories, but it's only as good as its assumptions.
  2. Fundamental Analysis

    Interpreting A Company's IPO Prospectus Report

    Learn to decipher the secret language of the IPO prospectus report - it can tell you a lot about a company's future.
  3. 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.
  4. Options & Futures

    Options Basics Tutorial

    Discover the world of options, from primary concepts to how options work and why you might use them.
  5. Options & Futures

    The ABCs Of Option Volatility

    The mystery of options pricing can often be explained by a look at implied volatility (IV).
  6. Active Trading

    The Fed Model And Stock Valuation: What It Does And Does Not Tell Us

    Learn about this popular stock market valuation model and how accurate it has been over the years.
  7. Active Trading Fundamentals

    Invest In Gold Through ETFs

    Steep barriers to entry in gold futures have spawned an assortment of gold based equity funds.
  8. Forex Strategies

    An Introduction To Trading Forex Futures

    We explain what forex futures are, where they are traded, and the tools you need to successfully trade these derivatives.
  9. Economics

    Understanding the Fisher Effect

    The Fisher effect states that the real interest rate equals the nominal interest rate minus the expected inflation rate.
  10. Fundamental Analysis

    Explaining the Geometric Mean

    The average of a set of products, the calculation of which is commonly used to determine the performance results of an investment or portfolio.

You May Also Like

Hot Definitions
  1. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
  2. Wash Trading

    The process of buying shares of a company through one broker while selling shares through a different broker. Wash trading ...
  3. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  4. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  5. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  6. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
Trading Center