The practical framework of the Black-Scholes model of pricing a european call option: economical and mathematical interpretation
Journal Title: Acta Economica - Year 2014, Vol 12, Issue 21
Abstract
Starting in 1973 with publishing the paper The pricing of Options and Corporate Liabilities, Fischer Black and Myron Scholes made a revolution in the world of fnances. They developed a model for pricing of options called Black-Scholes model, which is nowadays placed in the middle of the economic theory and modern fnances. Also, it is important to emphasize the work of Robert Merton who gave a mathematical explanation of this problem. For developing economic theory Myron Scholes and Robert Merton have received Nobel prize in economics, while Black Fischer did not received deserved prize because he died in 1995. Black-Scholes model of pricing of the options provides investor different market assessments of shares volatility. On the other hand, knowing and understanding Black-Scholes model enables investors to manage risk, which will develop their performances and the portfolio of investments. Although there are different challenges and critics of a group of authors connecting Black-Scholes model of option pricing, its practical use is very wide, because BlackScholes model does not begin with a fact how much the presumptions are practical sustainable, but how much the model itself can predict future values.
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Драган Јањић
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- EP ID EP43800
- DOI https://doi.org/10.7251/ACE1421141J
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