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The Black–Scholes model (pronounced /ˌblæk ˈʃoʊlz/[1]) is a mathematical description of financial markets and derivative investment instruments. The model develops partial differential equations whose solution, the Black–Scholes formula, is widely used in the pricing of European-style options.

The model was first articulated by Fischer Black and Myron Scholes in their 1973 paper, "The Pricing of Options and Corporate Liabilities." The foundation for their research relied on work developed by scholars such as Jack L. Treynor, Paul Samuelson, A. James Boness, Sheen T. Kassouf, and Edward O. Thorp.[2][citation needed] The fundamental insight of Black-Scholes is that the option is implicitly priced if the stock is traded. Robert C. Merton was the first to publish a paper expanding the mathematical understanding of the options pricing model and coined the term Black–Scholes options pricing model.

Merton and Scholes received the 1997 Nobel Prize in Economics (The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel) for their work. Though ineligible for the prize because of his death in 1995, Black was mentioned as a contributor by the Swedish academy.[3]


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