FOREX
BlackScholes Model Definition  The BlackScholes Model is the prevailing mathematical
formula used to price currency options in the market with a fixed, European style, expiration
date. The model generates prices based on a set of ideal assumptions related to volatility,
standard normal distribution, and probability densities. The primary drivers of the pricing model
are current forex price, intrinsic value, time to expiration, and volatility. The theory behind the
model contends that a currency and its call option are comparable investments. The movement of
price in the currency will also be reflected in the movement of the price of the option, but not
necessarily by the same amplitude. The BlackScholes model does not mimic reality perfectly
due to the simplicity required in its assumptions. It is widely employed as a useful
approximation, but avoidance of risk requires an understanding its limitations for proper
application. Fischer Black and Myron Scholes first articulated their pricing model in 1973. The
basic insight of BlackScholes is that the option is implicitly priced if the currency is traded.
Merton and Scholes received the 1997 Nobel Prize in Economics for their work. However, critics
have suggested that the model merely recast many other pricing models that had been used for
years.
Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be
suitable for all investors. The possibility exists that you could lose more than your initial deposit.
The high degree of leverage can work against you as well as for your portfolio.
BlackScholes model
BlackScholes model
The
BlackScholes model
is a tool for pricing equity options. The BlackScholes model, often
also called using its full name
BlackScholes Option Pricing Model
, is an approach for
calculating the value of a stock option, let it be a call option or a put option.
The basic idea behind the
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 Fall '11
 BillieBrotman
 Forex, Options, Mathematical finance, Black–Scholes, Myron Scholes, blackscholes model

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