The Black-Scholes model, developed by Fischer Black, Myron Scholes, and Robert Merton in the early 1970s, is a mathematical framework used to determine the theoretical price of European-style options. The model assumes that the stock price follows a Geometric Brownian Motion with constant volatility and that markets are efficient, meaning that prices reflect all available information. The core of the model is encapsulated in the Black-Scholes formula, which calculates the price of a call option as:
where:
In this context, represents the volatility of the stock.
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