The Black-Scholes formula

Certainly one of the biggest breakthroughs in quantitative finance, the Black-Scholes (pronounced like “Black-Shoales” not “Black-Skoales”) model was introduced in 1973 and provides a mathematically principled approach to options pricing. While the original models relies on partial differential equations it subsequently found a different interpretation through stochastic processes (martingales) by describing stock prices through a … Continue reading The Black-Scholes formula