Question

# What are the inputs of the Black-Scholes option pricing formula?

Solution

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Answered 1 year ago
Answered 1 year ago

A Black-Scholes choice pricing model is a variation of the binomial model for choice pricing in which the underlying asset's price is considered to change every second for an unlimited time period and the continuous return on the underlying asset come out of a regular distribution.

$i)$ A most recent stock price on the market.

$ii)$ A strike price, also known as the exercise price, is the price at which an option is exchanged and the total payoff is determined.

$iii)$ An option can be exercised sometime before the exercise day.

$iv)$ A risk-free rate at which you can lend or borrow as much as you want.

$v)$ A volatility of the underlying stock's price. It expresses the degree to which stock prices fluctuate.