Black Scholes Model

Presented by: Naman Bansal & Srishti Sagar

Agenda
Introduction
History of Black Scholes Model
Important terms
Assumptions
Input Variables
Limitations
Conclusion

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 Introduction

 The Black-Scholes model, also known as the Black-Scholes-Merton (BSM) model, is

one of the most important concepts in modern financial theory. This mathematical
equation estimates the theoretical value of derivatives taking into account the
impact of time and other risk factors. Developed in 1973, it is still regarded as one of
the best ways for pricing an options contract.

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History of Black Scholes
Model
Developed in 1973 by Fischer Black, Robert
Merton, and Myron Scholes , the Black-Scholes
model was the first widely used mathematical
method to calculate the theoretical value of an
option contract.
Important Terms
• Strike price

• Spot price

• Time until expiration

• Risk free interest rate

• Volatility
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Assumptions
• European style options
• No dividends
• Random Walk
• Lognormal Distribution
• Risk free rate
• Constant Volatility
• No transaction costs

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Input Variables
• Strike price

• Current stock price 

• Time to expiration

• Risk free rate

• Volatility

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Limitations
• Limited to European Style
• Risk free interest rate
• Assumption of constant volatility in market
• No return

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Conclusion

The Black Scholes model was a turning point for the options
world who finally had a mathematical foundation to build their
options portfolios. The Black Scholes model also gave rise to a
number of option hedging strategies which are still being
implemented today.

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 References

• https://corporatefinanceinstitute.com/resources/derivatives/black-sc
holes-merton-model/

• https://www.investopedia.com/terms/b/blackscholes.asp#:~:text=Th
e%20Black%2DScholes%20model%2C%20aka,free%20rate%2C%20
and%20the%20volatility

• https://magnimetrics.com/black-scholes-model-first-steps/

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Thank you