Black-Scholes option-pricing model

Definition:

A model for pricing call options based on arbitrage arguments. Uses the stock price, the exercise price, the risk-free interest rate, the time to expiration, and the expected standard deviation of the stock return. Developed by Fischer Black and Myron Scholes in 1973.

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Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University

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Risk-averse

Describes an investor who, when faced with two investments with the same expected return but different risks, prefers the one with the lower risk.

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