The Black-Scholes model

The Black-Scholes model is a mathematical framework used to estimate the price of options, which are contracts giving the right to buy or sell an asset. Developed in the 1970s, it factors in the asset's current price, the option's strike price, time until expiration, interest rates, and market volatility. Essentially, it helps investors determine how much they should pay for an option by assessing the risk and potential return. The model revolutionized finance by providing a systematic way to evaluate options and contributed to the growth of modern financial markets.