16. What is Black-Scholes formula?
Black–Scholes formula, which gives a theoretical estimate of the price of European options and shows that the option has a unique price regardless of the risk of the security and its expected return (instead replacing the security's expected return with the risk-neutral rate). Merton and Scholes received the 1997 Nobel Memorial Prize in Economic Sciences for their work on Black-Scholes model. The formula led to a boom in options trading and provided mathematical legitimacy to the activities of the Chicago Board Options Exchange and other options markets around the world. It is widely used, although often with some adjustments, by option market participants.
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