Write a one paragraph summary of the Black-Scholes formula and argue for or agai

Question

Write a one paragraph summary of the Black-Scholes formula and argue for or against “the most important equation in finance”. Here is a documentary to give you some more background info: Http://documentary-movie.com/trillion-dollar-bet/ Write a one paragraph summary of the Black-Scholes formula and argue for or against “the most important equation in finance”. Here is a documentary to give you some more background info: Http://documentary-movie.com/trillion-dollar-bet/ Http://documentary-movie.com/trillion-dollar-bet/

Explanation / Answer

Black Scholes Model- It was developed in 1973 by Fisher Black and Myron Scholes. This model is used to determine the price of the options. This is considered one of the best ways for knowing the price of an option.

Elements of Black Scholes- Are as following:

Assumptions in Black Scholes model: Are as following:

Formula: C = SN (d1) - N (d2) Ke-rt

Black Scholes calculator is also available with the help of which, price can be known.

Advantage of Black Scholes model- This model saves time and you can calculate price of large number of options in very less span of time.

Limitations of Black Scholes model- It does not tell the accurate price of American style options.

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