Stochastic Processes
The Black-Scholes Model is a mathematical model used for pricing options, which are financial instruments that give the holder the right, but not the obligation, to buy or sell an asset at a predetermined price within a specific time frame. This model is foundational in financial mathematics as it provides a theoretical estimate of the price of European-style options, taking into account factors such as the current price of the underlying asset, the strike price, time to expiration, risk-free interest rate, and volatility of the underlying asset.
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