Black-Scholes Option Theory

Black-Scholes Option Theory

Black-Scholes is a mathematical model for the dynamics of a financial market containing derivative investment instruments (options).

The key idea behind the model is to hedge the option by buying and selling the underlying asset in just the right way and, as a consequence to eliminate risk.

This model is used by investment banks and hedge funds.

Gurula will show you how to use this model:

1. Is strike price in the money or out of the money.
2. Volatility of the underlying security
3. Interest Rates
4. Time left until expiration