THE BLACK-SCHOLES OPTION PRICING MODEL Homework Help

THE BLACK-SCHOLES OPTION PRICING MODEL

Black and Scholes (BS) developed a precise model to arrive at the equilibrium value, of an option. Before the BS mood is discussed in detail. it will be useful to understand the concept of option equivalent. The concept involves the purchase of a certain number of equity shares (say /\ shares) through, the partial sum raised by debt, This combination should be such that the payoffs from the levered investment in the share (or index) are, identical to the payoffs from the call option.

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OPTION VALUATION

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