Black Scholes Pricing Model

697 Words3 Pages
Financial Management Black-Scholes Pricing Model There’s several ways for pricing options, the Black-Scholes pricing model and Binomial pricing model, these two for the most part are common of the pricing options. The first model to be developed was the Black-Scholes model. This model is math based and mostly based on different suppositions and impractical. It’s unable to give the value of options on share paying stocks; the Binomial estimates are effective in solving this problem, by using a matrix to introduce the estimation errors. The Binomial option pricing matrix was developed in 1979. It’s a very beneficial model that includes the building of a binomial tree to signify different possibilities for the impending price over the life of the option. The Binomial model take on, the option price can either fluctuate over a time step, but it doesn’t take on the price that may remain untouched. The Black-Scholes model and Binomial model are two very significant models that use the ‘Calculate the option pricing’. They consist of likes as well as dislikes. The Black-Scholes model estimate related ideas about how things work with a call price with the aid of stock price, strike price, volatility, the time to finish, and interest rate that are risk free. The binomial models rest on the time to finish into a huge amount of time periods or space. The Black-Scholes model is one of the most widely use models today. It is the standard for pricing option on countless assets to include equities, equity indices, currencies and futures. Not intended as a model of interest rates, a different form of the Black-Scholes model, and used to price particular interest rate options, such as cap and floors. There are several inconsistencies that impact the options price. They include unknown prices, fluctuating prices, and rates that are risk free. The risk free rates are
Open Document