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Option pricing model
A mathematical model used to establish a value for option contracts based in particular on the price and volatility of the underlying, the risk-free interest rate, and the exercise price and expiration date of the option.
(1) The most well-known of these models are the Black-Scholes option pricing model and the binomial option pricing model used in the Cox-Ross-Rubinstein model. Each model has a number of variations.
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Synonyms and variations
- Binomial option pricing model
- Black-Scholes option pricing model
- Cox-Ross-Rubinstein model
- Option pricing method