Black-Scholes model is essentially a formula used in the calculation of a theoretical call price for options. It is considered to be the fundamental model for pricing in the option market (Cretien, 2006). This model uses in its calculation the five main determinants of an option's price, which include stock price, strike price, volatility, time left until expiration, as well as risk-free, short-term interest rate (Hoadley, 2010). The computations executed

Black-Scholes Option Pricing Model was developed in the 1970s as a way to generate a legitimate and accurate valuation model for stock prices based on specific circumstances in the market and the stock options. It is the creation of economists Myron Scholes and Fischer Black who aimed to better forecast call options at various times within the option life cycle (PBS, 2000). According to the research, "this work involved calculating

Pricing The price of Google today is $520.00 (MSN Moneycentral, 2014). The assumption then is that the strike price is going to be $572. The price of an option is related to the strike price, the price of the stock, the time to expiry, and the volatility of the stock and the risk free rate, according to the Black-Scholes option pricing model (Folger, 2014). The case notes that the option

Black-Scholes and Binomial Models There are different variables that usually impact the pricing options. This paper will be based on the attributes of the two widely accepted models that are used for pricing options; Black-Scholes and the Binomial Models. These two models are based on the same theoretical assumptions and foundations like risk neutral valuation and geometric price Brownian motion theory of stock price behavior. Option pricing theory has become among the

Executive summaryThe Capital Asset Pricing Model (CAPM) is considered a pivotal model in the computation of investment risk and the expected return on the investment. CAPM provides a way of ascertaining the expected return for stocks and estimating the required return. The single-index model (SIM) also aids in measuring the return and risk of a stock. It assumes that there is only one macroeconomic factor that brings about systematic risk

Derivative Securities Derivatives (Black Tuesday) Derivative Securities Derivative Securities It is difficult to understand or explain why throughout history some negative investor philosophies continually repeat themselves. Far too often investors miss blatant signs that lead to major collapses in the free markets. The purpose of this report is to discuss derivative securities in detail and how they affect those investor philosophies. Even unsophisticated investors understand that the stock and commodities markets are supposed to fluctuate