Black-Scholes Model)2009-08-09-08-09 Sunday 20:23 Black-Scholes Model, also translated as Black-Hughes Model, referred to as BS model, is a mathematical model for pricing financial derivatives such as options or warrants, which was first proposed by American economists Myron Scholes and fischer black, and later by Robert. This model is named after Myron Scholes and fischer black. 1997, Aaron Scholes and robert merton won the Nobel Prize in Economics for this model. However, the statistical phenomenon of fat tail affects the validity of this formula.

Five important assumptions of B-S model

1, and the rate of return on financial assets obeys lognormal distribution;

2. Risk-free interest rate and financial asset return variables are unchanged within the validity period of the option;

3. There is no friction in the market, that is, there is no tax and transaction cost;

4. Financial assets have no dividends and other income during the validity period of the option (giving up this assumption);

5. This option is a European option, that is, it cannot be implemented before the option expires.

model

C = S * N(D 1)？ e？ D2 language

These include:

C- initial reasonable price of option

L- option delivery price

S- the current price of the financial assets traded.

T- period of validity of option

R- risk-free interest rate h of continuous compound interest.

σ2- annualized variance

N()- cumulative probability distribution function of normally distributed variables,

Of course, you can use CAPM to evaluate.