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The Black scholes model is a mathematical model developed to describe the financial market and derivative investments; it shows the price variations over time of the financial instruments such as stock that can be used to determine the price of European call option. Option are financial instrument giving the holder the right to buy or sell an underlying stock or commodity at a future point in time at an agreed upon price .The model is a tool of pricing the equity option thus; it is an approach of calculating the value of stock option be it call option or put up option. The main idea that lies behind this model is that the price of an option is determined implicitly by the price of underlying stock. This model is one of the most important concepts of financial theory; it was developed by Fisher Black and Myron Scholes in 1973 and it is used widely today since it is known to be the best in determining the fair prices of option as we are going to see. (www.investopedia.com/). The Black Scholes model was not developed overnight, but it took a considerable length of time for the two professors to come up with it. Fisher Black started working on it when calculating the price of the stock warrants and it involved computing mathematical derivatives to ascertain how the rate of the discount of a warrant varies with stock price with time.
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