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The Black-Scholes formula, explained

Introduction to the most famous equation in finance

 
Jorgen Veisdal
Jorgen Veisdal
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Jul 14, 2019 * 12 min read
 

The Black-Scholes model is a mathematical model simulating the
dynamics of a financial market containing derivative financial
instruments. Since its introduction in 1973 and refinement in the
1970s and 80s, the model has become the de-facto standard for
estimating the price of stock options. The key idea behind the model
is to hedge the options in an investment portfolio by buying and
selling the underlying asset (such as a stock) in just the right way
and as a consequence...

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