Black-Scholes Model

About Black-Scholes Model

The Black-Scholes options pricing model, published in 1973 by Fischer Black, Myron Scholes, and Robert Merton, revolutionized derivatives trading. The model provided a mathematical formula for valuing options. The Chicago Board Options Exchange opened in 1973, the same year, creating the first US options market. Black-Scholes enabled explosive growth in derivatives. Scholes and Merton received the Nobel Prize in 1997 (Black had died). The same models were later blamed for the LTCM collapse in 1998, when Scholes and Merton were partners. The model assumes normally distributed returns, underestimating tail risks. Despite limitations, Black-Scholes remains the standard framework for options pricing globally.