The Black-Scholes model, developed in 1973, is still used today primarily for figuring out a fair price of options.
1. The model helps in determining the theoretical price of European-style options based on various factors such as the current stock price, the option's strike price, the time until expiration, the risk-free interest rate, and the stock's volatility.
2. By using the Black-Scholes model, investors and financial institutions can calculate the "fair value" of options, which aids in decision-making regarding buying or selling options in the financial markets.
3. The model has had a significant impact on the options market by providing a standardized method for pricing options, which has become a cornerstone in options trading and risk management.
In summary, the Black-Scholes model remains relevant in finance, particularly in the realm of options trading, due to its ability to estimate the fair value of options and its enduring influence on financial markets.
