All termsOption Pricing and ValueWorth knowing
Black Scholes Model
The Black Scholes model is a widely known mathematical framework for estimating the theoretical value of certain options using inputs including the underlying price, strike price, time to expiration, volatility and interest rates.
Why it matters to you
Traders do not need to calculate Black Scholes manually to trade options. But understanding what the model is helps explain where concepts such as theoretical option value and many of the Greeks come from. Real markets and different option types may require different models or adjustments.