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Black-Scholes Options Pricing Model

Author

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  • Jiøí Slaèálek

Abstract

This paper deals with the most widespread model of options pricing, the Black-Scholes model. The model is derived in the usual way, by means of Ito?s lemma. The Black-Scholes partial differential equation is obtained under the assumption of geometric Brownian motion of the underlying stock. Several useful generalizations, including a brief overview of risk-neutral pricing, are discussed. The last section contains an empirical test of this model using daily data from the Chicago Board Options Exchange. The appendix gives a thumbnail sketch of the fundamental results of stochastic differential calculus.

Suggested Citation

  • Jiøí Slaèálek, 2000. "Black-Scholes Options Pricing Model," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 50(2), pages 78-98, February.
    • Handle: RePEc:fau:fauart:v:50:y:2000:i:2:p:78-98
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    File URL: http://journal.fsv.cuni.cz/mag/article/show/id/138
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    More about this item

    Keywords

    Black-Scholes model; stochastic approach;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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