> For the complete documentation index, see [llms.txt](https://docs.oddz.fi/oddz-wiki/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.oddz.fi/oddz-wiki/basics/black-scholes-pricing-model.md).

# Black Scholes Pricing Model

The Black-Scholes-Merton (BSM) model is a pricing model for financial instruments. It is used to determine the value of options. The BSM model is generally used to calculate the fair value of stock options based on six different variables: volatility, type, underlying stock price, strike price, period, and the risk-free rate. It is based on the hedging principle and aims to eliminate risks associated with the volatility of underlying assets and stock options.

Here’s a theoretical deep dive into the [Black-Scholes-Merton (BSM) model](https://www.investopedia.com/terms/b/blackscholes.asp#:~:text=The%20Black%2DScholes%20model%2C%20aka,free%20rate%2C%20and%20the%20volatility.)

{% embed url="<https://www.youtube.com/watch?v=pr-u4LCFYEY>" %}
Black-Scholes-Merton (BSM) model
{% endembed %}


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