The Black-Scholes Model

1219 Words Feb 22nd, 2018 5 Pages
By 1997, this body of work’s positive impact on the global world of finance would afford these economists with the most prestigious award given, the Nobel Prize on Economics. Although the Sveriges Riksbank Prize in Economic Science Award, in memory of Alfred Nobel, would be given to only two of the three framers of this financial model, special recognition would be granted to the third economist that suffered an untimely death two years earlier.

The Black-Scholes Model
Background
The Black-Scholes model, also known as the Black-Scholes-Merton model developed for calculating the premium of an option was introduced in an article published in the Journal of Political Economy in 1973 in a paper entitled, “The Pricing of Options and Corporate Liabilities”. The authors of this financial theory were, namely, Fischer S. Black, Myron S. Scholes and Robert C. Merton. They gleaned a randomly determined partial differential equation, which estimated the price of the option over time. Fischer and Scholes worked closely together at the MIT Sloan School of Finance. Together they developed an equation to value stock options and named their formula, the “Black-Scholes Model.” Note…
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