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.
Black-Scholes-Merton (BSM) model