Option Pricing Models

Option pricing models are mathematical tools used to determine the fair value of options, which are contracts giving the right to buy or sell an asset at a specified price before a certain date. The most well-known model is the Black-Scholes model, which considers factors like the asset’s current price, the option's strike price, time until expiration, volatility, and interest rates. These models help traders and investors make informed decisions by estimating how much an option should be worth based on market conditions and the underlying asset's behavior.