The foundational mathematical model for pricing European-style options, published in 1973 by Fischer Black, Myron Scholes, and Robert Merton. Uses five inputs: stock price, strike price, time to expiry, interest rate, and volatility.
Using Black-Scholes with stock at $100, strike $105, 30 days to expiry, 5% rate, and 20% volatility, the fair call price was calculated as $1.85.
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