Pricing the Future – Black Scholes @50

Finance Black Scholes at 50 bbc 2012 blog 6 2023

bbc 2012 Black-Scholes: The maths formula linked to the financial crash

A digital invite has nudged me into a quick mini post.


14th June 2023 free tickets here @ CQFinstitute

Myron Scholes debating David Orrell on the relevant (ir)realities? Sounds attractively intriguing, not just for financial connoisseurs.

Black and Scholes option pricing formula What Is the Black-Scholes Model?

The Black-Scholes model, also known as the Black-Scholes-Merton (BSM) model, is one of the most important concepts in modern financial theory. This mathematical equation estimates the theoretical value of derivatives based on other investment instruments, taking into account the impact of time and other risk factors. Developed in 1973, it is still regarded as one of the best ways for pricing an options contract.

  • The Black-Scholes model, aka the Black-Scholes-Merton (BSM) model, is a differential equation widely used to price options contracts.
  • The Black-Scholes model requires five input variables: the strike price of an option, the current stock price, the time to expiration, the risk-free rate, and the volatility.
  • Though usually accurate, the Black-Scholes model makes certain assumptions that can lead to predictions that deviate from the real-world results.
  • The standard BSM model is only used to price European options, as it does not take into account that American options could be exercised before the expiration date.

Capitalism’s mode of economic reproduction seems to hinge on a financial mode of putting monetary value on future earnings. For that you need formulas.

Black and Scholes option pricing formula may currently be the most famous financial formula but it’s neither the first, nor likely to be the last.

My favourite comes via the CasP economists Nitzan and Bichler:

Just follow the Money…

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